- Problem Evaluation
I have a car for my family that usually use for daily activity such as go to the market, family vacation and visiting our relative. This car was bought at 2014 and the type of it is city car. When I have a child this car feels narrow especially when we go out of the town and bring a lot of things. Those reasons make me thing to change it with the new and also the bigger one.
- Development of feasible alternatives
In this situation there are two feasible options either buy new car or keep my old car. I will analysis these two options to get the best result. Not only to meet my desire to change with bigger car but also compare the cost.
- Development the outcome for each alternative
This defender & challenger analysis will use two method approach present worth and Equivalent Uniform Annual Cost (EUAC). The reason why I chose those two methods because present worth method can calculate in present time how much the cost of two alternatives during economic life and from EUAC method I can get annual cost of each alternative with equivalent uniform / condition. Comparing the value of present worth and EUAC are the good way to know which the best alternative is.
- Selection of criteria
The Rule of thumb in present worth method; choose the Alternative with the highest value. The opposite of present worth method, in EUAC method we choose alternative with smallest value. The highest value of present worth method and smallest value of EUAC indicate the best alternative from economic perspective.
- Analysis and comparison of the alternative
Defender and challenger data that will be used in PW and EUAC calculation are in the table below:
Table 1. Alternatives data
Next step is data calculating using PW and EUAC method. The Calculation result of PW and EUAC method are in table below:
Table 2. PW calculation result
Table 3. EUAC calculation result
- Alternative selection
Based on PW and EUAC calculation result Challenger dominating over defender alternative in both PW and EUAC Method. The PW of the challenger is greater (less negative) than PW of defender. And new car has the smaller EUAC (IDR 70,041,887 < IDR 76,986,792). Thus, the old car should be replaced immediately. This evaluation result also Align with my desire to change the car with the bigger one.
- Performance monitoring & Post Evaluation Result
The evaluation result show the old car should replace immediately because operating cost to maintain this car higher than if we buy the new one. If the asset already passed the economic life, they cost (cash out) should be higher than the new asset. Next blog posting I will try to pick a topic of “determining economic life of the asset” as another alternative to decide defender or challenger.
- Sullivan, G. W., Wicks, M. E., & Koelling, C. P.(2014). Engineering economy 16th Edition. Chapter 9 – Replacement Analysis., pp.427-466. Prentice Hall.
- The University of Tuledo (2017). Replacement Analysis. Retrieved from http://www.eng.utoledo.edu/~nkissoff/lessons/Lesson14.html
- Kullabs.com (2017). Note on Replacement Analysis and Economic Service Life. Retrieved from https://www.kullabs.com/classes/subjects/units/lessons/notes/note-detail/6002