In: Accounting
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 |
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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