ABSTRACT
The life-cycle cost analysis evaluates the total owning and operating cost. It takes into account the time value of money and can incorporate fuel cost escalation into the economic model. This approach is also used to evaluate competitive projects. In other words, the life-cycle cost analysis considers the cost over the life of the system rather than just the first cost. To compare energy utilization alternatives, it is necessary to convert all cash flow for each measure to an equivalent base. When life-cycle costing is used to compare several alternatives, the differences between costs are important. This chapter focuses on simple payback analysis. It should be used in conjunction with other decision-making tools. Depreciation affects the “accounting procedure” for determining profits and losses and the income tax of a company. Energy conservation equipment, classified as real property, is depreciated on a straight line basis over a recovery period.
