Citation
Abstract
A mathematical model is developed for calculating the life cycle costs for a project where the operating costs increase or decrease in a linear manner with time. The life cycle cost is shown to be a function of the (1) investment costs, (2) initial operating costs, (3) operating cost gradient, (4) project life time, (5) interest rate for capital, and (6) salvage value. The results show that the life cycle cost for a project can be grossly underestimated (or overestimated) if the operating costs increase (or decrease) uniformly over time rather than being constant as is often assumed in project economic evaluations. The following range of variables is examined: (1) project life from 2 to 30 years, (2) interest rate from 0 to 15 percent per year, and (3) operating cost gradient from 5 to 90 percent of the initial operating cost. A numerical example plus tables and graphs is given to help the reader calculate project life cycle costs over a wide range of variables.
Details
- Volume
- 42-39
- Published
- June 15, 1977
- Pages
- 60–70
- File Size
- 816.4 KB