Definition - What does Economic Life mean?
Economic life is the optimal time before replacement calculated for industrial machines. The utilization of machines is increasing. However, the salvage value of these machines is declining, while the costs of operations are skyrocketing. Ideally, there should be a maximum time allowed to replace the machines.
Age can shorten the economic life of machines, as well as corrosion and other processes.
Corrosionpedia explains Economic Life
Corrosion is considered a natural process and can affect the life of machines both directly and indirectly. Preventive maintenance, like using protective coating on the machines, can slow down the process of corrosion, but there comes a time that such machines require replacement. However, total replacement should be kept at a minimum since machines are large investments.
For instance, a particular machine that was purchased at $1500 should be able to deliver productivity equivalent to more than its cost and the operating costs, so that a facility or organization can regain its revenue. Frequent repairs, maintenance and most of all, total replacement can be expensive. All of these deplete the economic life of machines.
Industries that make use of machines in their operations should be able to address the countless decision issues related to their investments. Operators should not only study or assess the present value of a machine, but also the cash flows that are estimated over a certain period of time. This is to ensure that the economic life of machines are suitable enough to cover the length of operation and operational budget, along with other factors.