Given the facts below, calculate the LCC. (Life Cycle Costing)
For each alternative: The time horizon is 30yrs. Real interest rate is 3% Nominal interest rate is 7% Assume the cash flows are EOY cash flows and happen once per year starting at year 1. Each alternative has a construction duration of 2 years. The construction starts at January 2019. Construction costs incurs as equivalent uniform annual cost over the construction duration. The building location is in Texas. There is no salvage value for each alternative design. *Note. Salvage value is NOT residual value check notes The bank is providing a loan at 8% compounded annually for the construction costs. o There are no payments on the loan during the construction period. o You must pay pack the loan in 15 equal installments starting at year 3. The loan finance rate will be 8%. Alternative Two . Construction cost is $4.4 million Energy usage is natural gas and electrical o Projected annual natural gas use is $12,000 Projected annual electricity use is $5,000 . HVAC O Lifespan is 20 years starting at the service date The original costs are included in construction costs. o The estimated replacement cost is $375,000 . Other elements of the mechanical systems (everything except HVAC) Initial cost of $50,000 (included in the constructions costs) Lifespan of the mechanical system is 35 years starting at the service date o There is a utility rebate of $50,000 for energy savings payable when the building is put in service Operations and maintenance are $115,000 per year (not including energy) For each alternative: The time horizon is 30yrs. Real interest rate is 3% Nominal interest rate is 7% Assume the cash flows are EOY cash flows and happen once per year starting at year 1. Each alternative has a construction duration of 2 years. The construction starts at January 2019. Construction costs incurs as equivalent uniform annual cost over the construction duration. The building location is in Texas. There is no salvage value for each alternative design. *Note. Salvage value is NOT residual value check notes The bank is providing a loan at 8% compounded annually for the construction costs. o There are no payments on the loan during the construction period. o You must pay pack the loan in 15 equal installments starting at year 3. The loan finance rate will be 8%. Alternative Two . Construction cost is $4.4 million Energy usage is natural gas and electrical o Projected annual natural gas use is $12,000 Projected annual electricity use is $5,000 . HVAC O Lifespan is 20 years starting at the service date The original costs are included in construction costs. o The estimated replacement cost is $375,000 . Other elements of the mechanical systems (everything except HVAC) Initial cost of $50,000 (included in the constructions costs) Lifespan of the mechanical system is 35 years starting at the service date o There is a utility rebate of $50,000 for energy savings payable when the building is put in service Operations and maintenance are $115,000 per year (not including energy)
