Question

At 10% per year, determine the annual life cycle cost for the following data.

Component	Estimated cost
Development	$100,000 now
Programming	$20,000 now $ 10,000 years 1-4 $15, 000 years 5-6
Operation	$8,000 years 1-6
Support	$ 4,000 years 1-3

		$214,200
		$217,240
		$49,200
		$49,940

Answer 1

Option(A) $214,200 is correct.

*Life cycle cost- It estimates a product's revenue and expenses over it's entire life cycle.

*Life cycle cost = Initial cost + (Annual costs *Project Life*Discouting factor)

Component	Estimated Cost	Years	PV	PV Amount
Development	$             100,000	Now	1.000	$ 100,000.00
Programming	$               20,000	Now	1.000	$    20,000.00
	$               10,000	Year 1-4	3.170	$    31,699.00
	$               15,000	Year 5-6	1.185	$    17,781.00
Operation	$                 8,000	Year 1-6	4.350	$    34,802.00
Support	$                 4,000	Year 1-3	2.480	$      9,918.00
Annual Life Cycle cost:			$214,200

*Year 1-4 = 0.909+0.826+0.751+0.683 = 3.170,

*YEar 5-6 = 0.621+0.564 = 1.185;

*Year 1-6 = 0.909+0.826+0.751+0.683+0.621+0.564 = 4.350;

*Year 1-3 = 0.909+0.826+0.751 = 2.480.

PV @10%
Years	Pv@10%	P.V
0	1	1.0000
1	1.1	0.9091
2	1.1	0.8264
3	1.1	0.7513
4	1.1	0.6830
5	1.1	0.6209
6	1.1	0.5645
7	1.1	0.5132
8	1.1	0.4665

For more: PV-PResent value of 10% for x years--Refer PV table.

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