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Life Cycle Costs Formula and Calculator

Engineering Applications

Life Cycle Costs Formula and Calculator

A representation in present dollars of the cost of an investment over its lifetime is useful for evaluating mutually exclusive alternatives that have the same anticipated lifetime.

A discount rate is required for a life-cycle-cost calculation. The discount rate represents the cost of capital to building owners. In essence, it is the rate on a loan (or bond) adjusted to account for inflation and taxes. A 3% real discount rate is typical for energy policy analyses. Higher rates are often used by private investors for economic evaluation of equipment. To account for inflation and fuel escalation, either lower the discount rate or inflate future energy and maintenance costs.

Life-cycle cost is calculated by determining the present worth of the cost of an investment. For system alternatives, it is

LCC = IC + ESPWF ( COSTenergy + COSRmaint )

Where:

where
LCC = life-cycle cost
IC = initial cost premium of alternative
ESPWF = equal series present worth factor (see Table 1.0)
COSTenergy = yearly energy cost saving
COSRmaint = yearly maintenance cost reduction

ESPWF for other lifetimes and discount rates can be calculated from:

ESPWF = [ ( 1 + d )n - 1 ] / [ d ( 1 + d )n ]

where n = lifetime in years and d = discount rate in percent/100.

Note that ESPWF can only be used when annual costs remain constant.

Table 1.0: Equal Series Present Worth Factors (ESPWFs)

Lifetime
(years)
Discount Rate
2.5%
3.0%
3.5%
4.0%
4.5%
7%
10%
15%
7
6.35
6.23
6.11
6.00
5.89
5.39
4.8
4.16
10
8.75
8.53
8.32
8.11
7.91
7.02
6.14
5.02
15
12.38
11.94
11.52
11.12
10.74
9.11
7.61
5.85

Related:

Derived from resources provided by:

ASHRAE Pocket Guide for HVAC, 2013


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