Work out life cycle cost comparison instantly with clear inputs, formula shown and shareable results.
Life cycle cost discounts ten years of operating cost at 8% and adds it to purchase price, so a higher capital cost with lower running cost can win. The payback on the capital premium is the figure that decides whether the more efficient option is worth the extra outlay.
Annuity factor
Factor = (1 - (1 + r)^-n) / r, with r = 8% and n = 10 years
Life cycle cost
LCC = Purchase price + Annual operating cost x Annuity factor
Payback on premium
Payback = Price difference / Annual operating cost saving
Because money spent in year ten is worth less than money spent today. Undiscounted totals systematically favour low-capital, high-running-cost options.
Yes if material. Discount the expected disposal proceeds and deduct them from the life cycle cost of each option.