What is replacement cost?

Replacement cost is the price that an entity would pay to replace an existing asset at current market prices with a similar asset. If the asset in question has been damaged, then the replacement cost relates to the pre-damaged condition of the asset.

The replacement cost of an asset may vary from the market value of that specific asset, since the asset that would actually replace it may have a different cost; the replacement asset only has to perform the same functions as the original asset - it does not have to be an exact copy of the original asset.

Replacement cost is a common term used in insurance policies to cover damage to a company's assets.

Similar Terms

Replacement cost is also known as replacement value.

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