Example of the using several Compound Interrest Functions in series
Problem: Find equivalent annual cost (expenditures).
a. Only purchase, maintenance and Salvage.
b. Total including Operations and Maintenance (O&M).
c. Total including inflationary effects on annual operations
First cost=100000;
useful life 11 years;
discount rate i=12%;
operating costs 7000 per year inflating at 4% annually;
maintence 5000 at years 3 6 9;
Salvage value at end of year 11= 40000.
Inflation rate 3% per year compounded.
- Note the problem identification.
- Begin by estimating the cash flow vector (treat Salvage or any revenue as
negative cost):
a. without operating cost:,br>
Cash Flow vector = 100000 0 0 5000 0 0 5000 0 0 5000 0 -40000
b. including operating cost of 7000 per year
Combined Cash flow = 10000 7000 7000 12000 7000 7000 12000 7000 7000 12000
7000 -33000
- Find the inflated operating expenses beginning at 7000 and increasing at
3% per year.
c. Inflated Cash Flow =
- Find the discounted (Net) Present Value
of (a.), d =
- Find the discounted (Net) Present Value
of (b.), e =
- Find the discounted (Net) Present Value
of (c.), f =
- Find the Equivalent Annual cost of d: answer a. =
- Find the Equivalent Annual cost of e: answer b. =
- Find the Equivalent Annual cost of f: answer c. =
End to date, ams 990714