Replacement Chain Analysis Calculator

About this calculator

Replacement chain analysis solves a problem plain NPV comparison gets wrong: when two mutually exclusive investment options have different useful lives, comparing their raw NPVs unfairly favors the longer-lived option just because it captures more years of cash flow. The method repeats each project hypothetically until both reach a common time horizon (the least common multiple of their lives), or equivalently converts each project's NPV into an equivalent annual annuity (EAA) — the constant yearly cash flow that would produce the same NPV over that project's own life — making the comparison apples-to-apples.

This calculator takes a project's initial cost, periodic cash flow, useful life and discount rate, and computes its NPV alongside the equivalent annual annuity for chain comparison against alternatives. Corporate finance analysts comparing equipment or machinery with different replacement cycles, capital budgeting committees evaluating competing projects, and finance students working through mutually-exclusive-project problems use it to avoid the common mistake of picking the higher-NPV option when it simply runs longer, not because it creates more value per year.