Application of dynamic programming in equipment substitution

The objective of this work was to develop a dynamic programming model to determine the optimal time to replace equipment, including the incomes generated by the use and removal of the machine, aiming at the maximization of profits through a recurrence relation related to the incomes and costs along the years. Thus, the proposed model was compared to the traditional replacement model using the dynamic programming that does not include the income generated by the equipment, used by Filgueiras (1997). The model proposed was satisfactory according to the objective of the work, as its development made it possible to offer optimal decisions to replace or maintain the equipment. The model that includes only the costs showed to be best recommended in situations where the equipment is used without concern of generating annual incomes. On the other hand, the model developed can be used in situations where the equipment generates direct incomes or not. The model developed with the income showed to be efficient, and a greater susceptibility to a raise in the purchase value of the equipment was observed, whereas the model without concern to income is more susceptible to variations of interest rates. The advantage in using the dynamic programming (PD) in this case is that this tool offers a much greater range of alternatives at the moment of the decision making.

Dynamic programming; equipment replacement; income and, costs

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