EAM.8:5.2 - Comparing the complete supplied policies for D

For the constructed D case, both policies supply the same required service for five years under their stated engineering qualifications. Continued use needs €0.50 million initially as operating expenditure and €1.00 million at each year end, with zero terminal value. Replacement needs €3.00 million capital, €0.35 million each year and has €1.20 million terminal value. These are teaching inputs, not estimates for a real pump.

At a 3% real rate, the five-year annuity factor is 4.579707 and the terminal factor is 0.862609. The comparable present costs are 0.50 + 1.00 × 4.579707 = 5.079707 and 3.00 + 0.35 × 4.579707 − 1.20 × 0.862609 = 3.567767 million. The comparison therefore favors replacement when both options are eligible and resources are available.

The continued-use policy is supported for the stated horizon; a one-year forecast alone would not justify five-year use. If a new finding invalidates that support, the practitioner marks the policy ineligible before comparing cost. If instead the service is no longer required, withdrawal becomes a new alternative with its own exit consequences. EAM.10 examines D’s choice together with competing assets.