ECONOMICS

Detailed explanation-1: -the INVESTMENT that is undertaken to replace a firm’s plant and equipment or an economy’s CAPITAL STOCK, which have become worn out or obsolete.

Detailed explanation-2: -Replacement investment is the actual purchase of equipment to maintain the. output capacity that is lost through output decay and scrapping. Note that replace-ment investment is not equivalent to deterioration, depreciation, or scrapping.

Detailed explanation-3: -An example of a replacement project necessary to continue usual operations would be funding the replacement of a worn-out piece of equipment with a new piece designed to do the same job in a manufacturing plant. It is a simple capital budgeting project to evaluate.

Detailed explanation-4: -depreciation is also called replacement investment-Economics-Introduction-13801779 | Meritnation.com.

Detailed explanation-5: -The practice of calculating a replacement cost is known as “replacement valuation.” Replacing an asset can be an expensive decision, and companies analyze the net present value (NPV) of the future cash inflows and outflows to make purchasing decisions.