REPLACEMENT CHAIN METHOD
A capital budgeting decision model that is used to compare two or more mutually exclusive capital proposals with unequal lives. The Replacement Chain Method is a decision model that takes into consideration the different life spans of alternative proposals, allowing a more accurate comparison of the proposals. In Replacement Chain Analysis, the Net Present Value (NPV) is determined for each proposal, and one or more iterations (the "links" in the replacement chain) can be completed to create comparable time frames for the proposals. By comparing the proposals over like-periods of time, accept-reject information for the various proposals becomes more reliable.
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