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How to Calculate the Life Cycle Cost for a Water Treatment Plant

Municipalities use life cycle cost analysis to compare the opportunity cost of construction projects, including water treatment plants. Life cycle cost analysis also allows comparison of various designs' return on investment. It combines the initial project cost and financing with maintenance, useful life, operations costs and salvage value. After determining the life cycle cost, you apply a discount rate that represents the required rate of return on investment. The discount rate is not a static variable but, changes according to the project and the investor.

Instructions

- 1
  Determine the structure's initial cost of purchase or construction. Do not include interest if a loan is used for the purchase. Call this number "P."
- 2
  Calculate the interest paid on any loan used to fund the project. If no loan was used, use zero in the final calculation. Call this number "I".
- 3
  Determine the present value of the replacement cost of the water treatment plant. Call this number "Re."
- 4
  Determine the present value salvage or resale value of the plant at its decommission date. Call this number "RS."
- 5
  Determine the present value disposal cost to demolish the structure after its decommission date. Use zero if you will resell the plant instead. Call this number "D."
- 6
  Estimate the water treatment plant's energy costs during its useful life. Call this number "E."
- 7
  Estimate the water costs of the plant during its useful life. Call this number "W."
- 8
  Estimate the maintenance and repair costs of the plant during its useful life. Call this number "M."
- 9
  Estimate all other ownership costs, including permitting, licensing and administrative costs such as employee salaries and benefits, for the plant's useful life. Be complete and accurate in the estimate. Call this number "O.
- 10
  Sum all of the variables, applying the formula, Life Cycle Cost (LCC) = P + I + Re - RS+ D + E + W + M + O where LCC is the present value total life cycle cost of the water treatment plant in dollars. Repeat this process for each water treatment plant design submitted to the municipality.

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