The Effect of a Pro-Rata Rebate Warranty on the Age Replacement Policy With Salvage Value Consideration

This paper presents the effects of salvage value on the optimal age-replacement policy for non-repairable products sold with a pro rata rebate warranty (PRRW). Cost models from the customer's perspective are developed for both warranted, and non-warranted products. The corresponding optimal replacement ages are derived such that the long-run expected cost rate is minimized. Under the increasing failure rate assumption, the existence and uniqueness of the optimal age for preventive replacement are shown, and the impacts of a PRRW on the optimal age-replacement policy are investigated analytically. Finally, a numerical example is provided for the optimal policy illustration and verification.