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What Is the Basic Comparison? 419
or somewhere between the lives of the defender and challenger. The essential principle in
this case is that insetting the study period,the decision maker must use an appropriate
method as described in earlier chapters. The analyst must be explicit about the economic
costs and benefits of the challenger that is assumed for replacement of the defender (when
replacement is made), as well as residual or salvage values of the alternatives at the end of
the study period. In this case the repeatability replacement assumptions do not apply, and
thus the replacement analysis techniques are not necessarily valid. The analysis techniques
in the decision map also may not apply when future challengers are not assumed to be
identical to the current best challenger.This concept is discussed in the next section.
A Closer Look at Future Challengers
We defined the challenger as the best available alternative to replace the defender. But in
time, the best available.alternativecan change. And given the trend in our technological
society, it seems likely that future challengers will be better than the present challenger.If
so, the prospect of improved future challengers may affect the present decision between the
defender and the challenger.
Figure 13-6 illustrates two possible estimates of future challengers. In many techno-
logical areas it seems likely that the equivalentuniform annual costs associated with future
challengers will decrease by a constant amount each year.In other fields, however,a rapidly
changing technology will produce a sudden and substantially improved challenger-with
decreased costs or increased benefits. The uniform decline curve of Figure 13-6 reflects
the assumption that each future challenger has a minimum EUAC that is a fixed amount
less than the previous year's challenger.This assumption, of course, is only one of many
possible assumptions that could be made regarding future challengers.
If future challengerswill be better than thepresent challenger,what impact will this have
on an analysis now? The prospect of better future challengers may make it more desirable
to retain the defender and to reject the present challenger. By keeping the defender for
now, we may be able to replace it later by a better future challenger. Or, to state it another
way, the present challenger may be made less desirable by the prospect of improved future
challengers. As engineeringeconomicanalysts,we must familiarizeourselveswith potential
FIGURE 13-6 Two possible ways the
EUAC of future challengers may decline.
Present
Challenger
o^2
Year
1 3
