Springfield is planning to build a new water treatment facility. The first cost

Question

Springfield is planning to build a new water treatment facility. The first cost of the facility will be $906711. Annual maintenance and repairs will be $16867 for each of the first 5 years, increase to $46917 for each of the next 10 years, and increase again to $55931 for each of the next 5 years. Springfield is also planning for a major overhaul at the end of 10 years which is estimated to cost $215858 and another minor overhaul at the end of 17 years which is estimated to cost $25979. Using an interest rate of 2.5%, what is the equivalent uniform annual cost (EUAC) for this system?

Explanation / Answer

So, from the above calculations, EUAC = $109,892.00 per year.

Calculations Years 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 A Initial Cost 906711 B Annual maintenance 0 16867 16867 16867 16867 16867 46917 46917 46917 46917 46917 46917 46917 46917 46917 46917 55931 55931 55931 55931 55931 C Major overhaul 215858 25979 D = A+B+C Net Cost 906711 16867 16867 16867 16867 16867 46917 46917 46917 46917 262775 46917 46917 46917 46917 46917 55931 81910 55931 55931 55931 E PV factor @ 2.5% 1.0000 0.9756 0.9518 0.9286 0.9060 0.8839 0.8623 0.8413 0.8207 0.8007 0.7812 0.7621 0.7436 0.7254 0.7077 0.6905 0.6736 0.6572 0.6412 0.6255 0.6103 F = D x E Present Value 906711 16455.61 16054.25 15662.69 15280.67 14907.97 40456.38 39469.64 38506.97 37567.77 205279.4 35757.55 34885.41 34034.55 33204.44 32394.57 37676.52 53830.85 35861.05 34986.39 34133.06 G = Sum F Net Present Value 1713117 H = Sum E 1 to 20 Sum of PV factors 15.5892 I = G / H EUAC 109891.5

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