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Replacement-chain problem

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Definition of Replacement-chain problem

Replacement-chain Problem Image 1

Replacement-chain problem

Idea that future replacement decisions must be taken into account in selecting
among projects.



Related Terms:

Agency problem

Conflicts of interest among stockholders, bondholders, and managers.


agency problems

Conflicts of interest between the firm’s owners and managers.


Asset substitution problem

Arises when the stockholders substitute riskier assets for the firm's existing
assets and expropriate value from the debtholders.


Replacement

This subject of replacement of existing policies is covered because sometimes existing life insurance policies are unnecessarily replaced with new coverage resulting in a loss of valuable benefits. If someone suggests replacing your existing coverage, insist on having a comparison disclosure statement completed.
The most important policies to examine in detail are those which were issued in Canada prior to December 2, 1982. If you have a policy of this vintage with a significant cash surrender value, you may want to consider keeping it. It has special tax advantages over policies issued after December 2, 1982.
Basically, the difference is this. The cash surrender value of a pre December, 1982 policy can be converted to an annuity in accordance with the settlement options in the policy and as a result, the tax on any policy gain can be spread over the duration of the annuity. Since only the interest element of the annuity payment will be taxed, there will be less of a tax impact on the annuitant. Policies issued after December 2, 1982 which have their cash surrender value annuitized trigger a disposition and the annuitant must pay tax on the total policy gain immediately. If you still decide to replace existing coverage, don't cancel what you have until the new coverage has been issued.


Replacement Capital Expenditures

Capital expenditures required to replace productive
capacity consumed during a reporting period.



Replacement cost

Cost to replace a firm's assets.


replacement cost

an amount that a firm would pay to replace an asset or buy a new one that performs the same functions as an asset currently held


Replacement-chain Problem Image 2

Replacement cost

The cost that would be incurred to replace an existing asset with one having the same utility.


Replacement cycle

The frequency with which an asset is replaced by an equivalent asset.


Replacement parts

Parts requiring some modification before being substituted
for another part.


Replacement value

Current cost of replacing the firm's assets.


Replacement Value

The amount necessary to duplicate a company's assets at current
market prices


Replacement Value

Cost of acquiring a new asset to replace an existing asset with the same functional utility.


Stock replacement strategy

A strategy for enhancing a portfolio's return, employed when the futures
contract is expensive based on its theoretical price, involving a swap between the futures, treasury bills
portfolio and a stock portfolio.


supply-chain management

the cooperative strategic planning,
controlling, and problem solving by a company and
its vendors and customers to conduct efficient and effective
transfers of goods and services within the supply chain


Underinvestment problem

The mirror image of the asset substitution problem, wherein stockholders refuse
to invest in low-risk assets to avoid shifting wealth from themselves to the debtholders.
Underlying
The "something" that the parties agree to exchange in a derivative contract.


Replacement-chain Problem Image 3

value chain

the set of processes that converts inputs into
products and services for the firm’s customers; it includes
the processes of suppliers as well as internal processes



 

 

 

 

 

 

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