# MAPI method

The MAPI method is an investment calculation method and represents a further development of the static profitability calculation. It is used to solve replacement and rationalization decisions . It was developed by Terborgh at the Machinery and Allied Products Institute (MAPI).

In order to make a decision, MAPI calculates a relative profitability that sets the income and costs of the next year (for new investments) in relation to the capital released (for non-investment). The exclusive consideration of the next year assumes that the relative profitability of the investment always increases.

## formula

${\ displaystyle D = {\ frac {BG + VK-ES-EK} {IK}} \ cdot 100}$ With (each related to the next year):

BG : Change in operating profit, i.e. the changes in income and expenditure due to the replacement investment.

UK : Avoided capital consumption (depreciation and maintenance).

ES : resulting tax burden, e.g. B. 70% (BG + VK) at 70% taxes

IK : Investment costs, i.e. acquisition costs minus repairs avoided in all remaining years of use of the old system and its residual value.

EK : arising capital consumption: ${\ displaystyle EK = {\ text {acquisition costs}} _ {\ text {new system}} \ cdot {\ frac {MS} {100}}}$ MS : The MAPI rate is read from a diagram. It depends on the useful life and the residual value of the new system. If the taxation is not equal to 50%, a correction value must be added to the MS. You can find out about this from special tables.

D : If the degree of urgency is higher than the discount rate , the replacement investment using the MAPI method is advantageous. If there are several possible investment objects, the one with the highest level of urgency should be selected.

## Barriers

In order to keep the application simple, some decision parameters were assigned standard values ​​for the MAPI method. This can falsify the accuracy of the result if the situation deviates from it. The assumptions are:

• A leverage ratio of 25%
• Debt capital interest of 3%
• A return on equity of 10%

These assumptions reflect the situation in the USA . With the decision for a simple application and data acquisition to the disadvantage of great accuracy, the method is primarily intended for small to medium investments.