The generalized Lvov formula for equipment under degradation

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Why is it important?

For the valuation of machinery and equipment, the Lvov formula is sometimes used. This formula allows us to calculate the market value of machinery item based on the market value of its analogue, taking into account the differences in their productivity, operating costs and service lives. However, this formula is based on the assumption that the productivity and operating costs of machinery items do not change over their service lives. We propose a generalization of this formula to a more realistic situation where the use of machinery items is described by a random degradation process