In a timeless environment, the replacement criterion operates satisfactorily. To consider time in the model, it is necessary to restate the replacement criterion: Replacement should occur when yearly costs (marginal cost) first crosses the minimum amortized average cost of the proposed replacement. Amortized average cost for any year T is found in two steps. First, the total present value of all costs from year one to T is computed, then, the total present value is amortized for T years just as a mortgage is amortized.