Economic Life
The total lifetime costs of an asset are driven by two components:
Capital recovery with return, CR(i)
Operation and maintenance costs
CR(i) will usually start off high and decrease over time, as shown in Table 11.1. On the other hand, the operating and maintenance costs for an asset usually start off low and increase over time. A new car usually costs much less to operate and maintain than an older car.
The operating and maintenance costs over some time period can also be converted to annual equivalent (AE(i)) terms. Simply take the present worth, PW(i), of the operation and maintenance cost cash-flow stream over that time period and multiply it by the equal-payment-series capital-recovery (A/P,i,n) factor. As the operating and ...
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