Equipment Decision: Repair vs. Replace (NPV)

The Challenge: Aging Production Line

A manufacturing company faces a critical decision regarding its aging production line, which is experiencing frequent breakdowns and increasing maintenance costs. Use this tool to compare the financial viability of two options:

Option A: Comprehensive Repair – Invest in a major overhaul to extend the useful life of the current equipment.
Option B: New Equipment Acquisition – Purchase brand-new, state-of-the-art machinery that promises higher efficiency and lower operating costs.

Input your own financial data below to determine the most financially beneficial path.

Input Financial Parameters

Discount Rate (%)

Analysis Period (Years)

Option A: Repair Costs & Benefits

Initial Repair Cost ($)

Salvage Value (End of Period) ($)

Option B: New Equipment Costs & Benefits

New Equipment Purchase Cost ($)

Salvage Value (End of Period) ($)

NPV Calculation Results

Option A: Comprehensive Repair

Year	Net Cash Flow	PV Factor	Present Value
Total NPV (Repair):

Option B: New Equipment Acquisition

Year	Net Cash Flow	PV Factor	Present Value
Total NPV (Replace):

The Final Decision

Important Considerations Beyond NPV:

Qualitative Factors: While NPV is quantitative, factors like improved product quality, enhanced safety, reduced operational headaches, technological obsolescence risk, and employee morale are also critical.
Salvage Value & Residual Life: The assumed salvage value for the new equipment at the end of the analysis period can significantly impact NPV. The new machine may also have a longer useful life beyond the analysis period.
Tax Implications: Depreciation tax shields and capital gains/losses from asset disposal are often included in a more detailed financial analysis.
Strategic Fit: Does the new equipment align better with the company's long-term strategic goals and future growth plans?
Uncertainty & Sensitivity Analysis: Real-world cash flows are estimates. Performing sensitivity analysis (changing discount rate, cash flow estimates) can provide insights into the robustness of the decision.

Interactive Equipment Investment Decision: Repair vs. Replace