The effect of tax depreciation on the stochastic replacement policy

• Published in: European journal of operational research Vol. 229; no. 1; pp. 155 - 164
• Main Authors: Adkins, Roger, Paxson, Dean
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 16.08.2013; Elsevier; Elsevier Sequoia S.A
• Subjects: Capital budgeting; Corporate taxes; Depreciation; Equipment replacement; Mathematical models; Operating costs; Operations research; Quasi-analytical solution; Studies; Tax depreciation; Tax rates; Uncertainty modelling; Capital budgeting; Tax depreciation; Quasi-analytical solution; Equipment replacement; Uncertainty modelling

► Replacement for equipment with a stochastic deteriorating operating cost is analyzed for three different tax depreciation schedules. ► The optimal policy is determined as the threshold boundary from a real option model. ► The effect of the tax shield is to lower the cost threshold, but positive ta...