Life cycle costing capital cost

Initial vs. continuing costs means you should focus not just on the initial capital cost of a product but on the life-cycle costs (capital cost plus operating cost plus maintenance cost). 

Economic Factors These inchrde capital cost (eqrripment, installation, engineering, etc.), operating cost (rrtUities, maintenance, etc.), emissions fees, and life-cycle cost over the expected eqrripment lifetime. 

Capital investment decisions are best made within the context of a life-cycle cost analysis. Life-cycle cost analysis focuses on the costs incurred over the life of the investment, assuming only candidate investments are considered that meet minimally acceptable performance standards in terms of the non-inonetary impacts of the investment. Using life-cycle analysis, the capital investment decision takes into account not just the initial acquisition or purchase cost, but maintenance, energy use, the expected life of the investment, and the opportunity cost of capital. When revenue considerations are prominent, an alternative method of analysis such as net benefit or net present value may be preferred. 

Capital investments can also be selected on the basis of other measures of performance such as return on investment, internal rate of return, and benefit-cost ratio (or savings-to-investment ratio). Flowever, care must be taken in the application of these methods, as an incremental analysis is required to ensure consistent comparison of mutually exclusive alternatives. Also, rather than requiring a separate value to be calculated for each alternative, as in the case of the life-cycle cost method, these other methods incorporate the difference between two mutually exclusive alternatives within a single measure. For example, the net benefits measure directly pressures the degree to which one alternative is more economically desirable than another. 

All capital equipment decisions should be based on the true or life cycle cost of the system. Life cycle cost includes all costs that will be incurred beginning with specification development before procurement to final decommissioning cost at the end of the compressor s useful life. In many cases, the only consideration is the actual procurement and installation cost of the compressor. While these costs are important, they represent less than 20 per cent of the life cycle cost of the compressor. 

What facility is there for evaluation (e.g. life-cycle costing, capital write-off/replacement, design, reliability) ... 

Assuming a 480-ton/day treatment rate, the estimated life-cycle cost for a full-scale treatment is approximately 160 per ton of dry soil processed (D13753L, p. 2). This estimate includes fixed capital investment and operating costs based on a 70% utilization factor for plant operations over a period of 17 years. Operating cost estimates (included iu the life-cycle cost estimate) include an inflation rate of 5% per year (D13753L, pp. 32-34). 

The vendor supplied an unspecified case study that compared the costs of an existing pump-and-treat system with a pump-and-treat system that had been retrofitted to accommodate an FE ACTIVE. The projected life-cycle cost (adjusted for an inflation rate of 4% and a rate of interest of 5%) of the existing pump-and-treat system was calculated to be 3,930,000 (1996 dollars). The life-cycle cost (adjusted for a 4% inflation rate and a 5% interest rate) of the FE ACTIVE retrofit system was calculated at 945,000 (1996 dollars). Both estimates included capital costs, operation and maintenance expenses, and the cost of groundwater monitoring. Similarly, had the FE ACTIVE system been installed initially, its life-cycle cost would be 1,630,000 (1996 doUars). 

A life-cycle costing analysis showed that the savings on electricity would give a 22 per cent after-tax return on the 2.7 million investment. This ROI exceeded the 15 per cent that top management had established as a criterion for capital investments that increased production, and was far above the company s average return on assets of 10 per cent. Nevertheless the company rejected the proposal, indicating that a 30 percent ROI was the policy for projects that do not increase production. This decision, not untypical, was unfortunate for both the proposing firm and the nation. 

The life cycle costs of the system are computed as follows revenue, fuel costs and 0 M are assumed to occur at the end of the year. The sum of these over the lifetime is discounted back to the present and the difference between the present value of the revenue and costs is identified as the capital expenditure permissible for an "Instant" plant erected at t = 0. 

If specialty equipment is included, the cost of biological and chemical sensors and the cost of high-quality construction are included in the construction costs of a protected building. However, these are only the initial costs that determine the capital investment required for protection. Life-cycle costs, which could be more substantial than initial costs, have to be considered. 

Selection of fluoropolymers is an integral part of the overall material selection process. This implies that all the available materials such metals, ceramics, and plastics are considered candidates for an application. The end user then considers these materials against established criteria such as required life, mean time between inspection (MTBI), ease of fabrication, frequency of inspection, extent of maintenance and, of course, capital cost. More often than not it is the initial capital cost, rather than the life cycle cost of equipment, that affects the decision made during the material selection step. However, the most important piece of data is the corrosion resistance of a material in the medium under consideration over the life of the equipment. This information is available in a different format for plastics than for metals. A comparison is appropriate. 

It was assumed that the power plant will be financed from revenue bonding. Therefore, reasonable estimates were made for interest on bonds, interest earned and expended during cor)struction, and bond discounts. Working capital and the debt reserve fund were assumed to be capitalized. By projecting all capital and operating costs with reasonable escalation factors, a life-cycle cost analysis was performed. Results of that analysis shown below indicate an estimate of required revenues to offset all costs. These projected costs are favorable when compared to alternative fossil fuel unit costs projected for the New England region. 

Cote et al. [11] undertook a detailed economic analysis in order to compare the life cycle costs of the MBR to both the CAS process and the CAS with tertiary filtration (CAS-TF). A range of plant sizes were considered, treating between 3,800 and 76,000 m day of sewage. The MBR consisted of a Zenon system with an average flux of 20 L m" day. Capital costs included the land costs in addition to the process. For the MBR, capital costs were lower than the CAS options on... 

Life cycle costing (LCC) is a concept for estimating the total cost or total ownership cost (TOC) which includes acquisition costs (total capital cost, i.e., land acquisition costs and construction costs), ownership costs (all future costs, viz., installation costs, operation costs, repair costs, service and maintenance costs, and disposal costs), as well as other cost components. 

It is obvious that reduction of the size of the dryer will lead to a reduction in initial capital cost. Although this should not be a deciding factor in the selection of an individual dryer, since only 10 to 15 percent of the life-cycle cost of a direct dryer is due to the initial capital cost of the drying system, it is still an important consideration as it can reduce the space requirement, duct sizes, size of ancillary equipment, etc., as well. One must intensify the drying rates without adversely affecting product quality in order to make the equipment smaller. 

Life-cycle costing utilizes universally accepted accounting practices for determining the total cost of asset ownership or projects over the service life. The economic analysis is usually performed for comparing competing alternatives. Since the initial capital outlay, support, and maintenance over the service life and disposal costs are considered, the time value of money assumes major importance in life-cycle costing. Discounting future cash flows to present values essentially reduces all associated costs to a common point in time for objective comparison. 

Kaufman R. 1970 Life cycle costing a decision-making tool for capital equipment acquisition. Cost and Management MarchlApril 1970. 

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