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  • Annualised Coste Ee 05-05-1

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    Capitalized cost refers to the present worth of cash flows that continue indefinitely. It is calculated by finding the present worth of non-recurring costs, converting recurring costs to annual worth, and dividing the total annual worth by the interest rate. An example calculates the $5,525,625 capitalized cost of a dam with a $5 million first cost, $25,000 annual maintenance, and $100,000 reconstruction every 5 years at 8% interest. For alternatives with a finite life, all cash flows are first converted to an equivalent annual worth over one lifecycle and then divided by the interest rate.

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    EFFICIENT ASSET REPLACEMENT THEORY

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    Capitalized cost refers to the present worth of cash flows that continue indefinitely. It is calculated by finding the present worth of non-recurring costs, converting recurring costs to annual worth, and dividing the total annual worth by the interest rate. An example calculates the $5,525,625 capitalized cost of a dam with a $5 million first cost, $25,000 annual maintenance, and $100,000 reconstruction every 5 years at 8% interest. For alternatives with a finite life, all cash flows are first converted to an equivalent annual worth over one lifecycle and then divided by the interest rate.

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    26 vues2 pages

    Annualised Coste Ee 05-05-1

    Transféré par

    jj
    Capitalized cost refers to the present worth of cash flows that continue indefinitely. It is calculated by finding the present worth of non-recurring costs, converting recurring costs to annual worth, and dividing the total annual worth by the interest rate. An example calculates the $5,525,625 capitalized cost of a dam with a $5 million first cost, $25,000 annual maintenance, and $100,000 reconstruction every 5 years at 8% interest. For alternatives with a finite life, all cash flows are first converted to an equivalent annual worth over one lifecycle and then divided by the interest rate.

    Droits d'auteur :

    © All Rights Reserved
    Téléchargez comme PDF, TXT ou lisez en ligne sur Scribd
    Signaler comme contenu inapproprié
    sur 2

    06/04/2017 engineering.utep.edu/enge/EE/05/05/1.

    htm

    5.5CapitalizedCost
    Capitalizedcostreferstothepresentworthofcashflowswhichgoonforaninfiniteperiodoftime.Some
    publicworksprojectslikedams,bridgesandparksfallintothiscategory.Inaddition,somepermanent
    endowmentcalculationsrequirecapitalizedcostconsiderations.Thecashflowsinvolvedinthecalculations
    canbecategorizedasoneoftwotypes:recurring(i.e.periodic/repeating)andnonrecurring(i.e.finitetime
    interval).Therepaintingofabridgeeverythreeyearsisanexampleofarecurringcost.Theinitial
    investmentcostorapartialannualserieswhichoccursonlyinyears1thru10areexamplesofnonrecurring
    cashflows.Thebasicequationinvolvedincapitalizedcostcalculationsis:

    P=A/i
    Thevalidityofthisequationcanbeeasilydemonstratedthruanexample.Supposeonewantedtoknowhow
    muchmoneycouldbewithdrawnforeverfromanaccountwhichcontains$1000earninginterestatarateof
    10%peryear.Obviously,itistheinterest($100peryearinthiscase)thatcanbewithdrawnforever.In
    equationform,

    Interest=Principal*Interestrate

    A=Pi,or

    P=A/i
    Theproceduretofindthecapitalizedofcashflowswhichcontainaninfiniteseriesis

    FindthePWofallfiniteintervalcashflowsusingtheregularengineeringeconomyformulas(P/F,P/A,
    1.
    P/G,etc)

    Convertall(nonannual)recurringamountsintoannualworthsoveronelifecycleandaddallAvalues
    2.
    together

    DividetheAvaluesobtainedinstep(2)byitogetthePWoftheannualamounts.
    3.

    AddallPWstogethertogetthecapitalizedcost.
    4.

    Thenextexampleillustratesthecalculationsinvolved.

    Example5.6Adamwillhaveafirstcostof$5,000,000,anannualmaintenancecostof$25,000and
    minorreconstructioncostsof$100,000everyfiveyears.Ataninterestrateof8%peryear,thecapitalized
    costofthedamisnearestto:

    (A)$213,125(B)$525,625(C)$5,312,500(D)$5,525,625

    Solution:

    The$5,000,000firstcostisalreadyapresentworth.The$100,000whichoccurseveryfiveyearscanbe
    convertedintoaninfiniteAvalueusingtheA/Ffactorforonelifecycle.DividingtheAvaluesbyiand
    addingtothe$5,000,000PWwillyieldthecapitalizedcost,CC.

    CC=5,000,00025,000/0.08100,000(A/F,8%,5)/0.08
    =5,000,000312,500100,000(0.1705)/0.08
    =$5,525,625

    Answeris(D)

    Occasionally,itmaybenecessarytodeterminethecapitalizedcostofanalternativewhichhasafinitelife
    suchaswhenitiscomparedagainstonewhichhasaninfinitelife.Insuchacase,thecapitalizedcostofthe

    http://engineering.utep.edu/enge/EE/05/05/1.htm 1/2
    06/04/2017 engineering.utep.edu/enge/EE/05/05/1.htm

    finitelifealternativecanbefoundbyfirstconvertingallofitscashflowsintoanequivalentannualworth
    (A)overonelifecycleandthendividingbyi.Thenextexampleillustratesthecalculationsinvolved.

    Example5.7Thefirstcostofacertainpieceofequipmentis$50,000.Itwillhaveanannualoperating
    costof$20,000and$5,000salvagevalueafterits5yearlife.Ataninterestrateof10%peryear,the
    capitalizedcostoftheequipmentisclosestto:

    (A)$32,371(B)$122,712(C)$323,710(D)$522,710

    Solution:ConvertallvaluesintoanequivalentAvaluethruonelifecycleanddividebyi:

    A=50,000(A/P,10%,5)20,000+5,000(A/F,10%,5)
    =50,000(0.26380)20,000+5,000(0.16380)
    =$32,371

    CC=32,371/0.10
    =$323,710

    Answeris(C)

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