About Life-Cycle Cost Calculator
The life-cycle cost calculator compares two options — typically an efficient upgrade against a baseline — over a multi-year study period and reports the present-value economics of choosing the upgrade. It returns the life-cycle cost (LCC) of each option, the incremental capital cost, the annual energy and maintenance savings, the simple and discounted payback periods, the net present value (NPV) of the savings, and the savings-to-investment ratio (SIR).
Enter the capital cost and the recurring annual cost for each option, the study period in years, a real discount rate, and an optional annual energy escalation rate. The tool discounts every future cash flow to its present value, applies escalation to the annual costs, and plots the cumulative NPV year by year so you can see exactly when the investment breaks even and how much value it creates over its life.
How It Works
- Enter the baseline and alternative capital costs (year 0) and their recurring annual energy + maintenance costs.
- Set the study period N, the real discount rate d, and an optional annual escalation rate e for the running costs.
- Each option LCC is its capital plus the present value of its annual costs: Σ cost_t/(1+d)^t with cost_t = annual·(1+e)^(t-1).
- The tool computes incremental cost, annual savings, simple and discounted payback, NPV of savings, and SIR = PV(savings)/incremental cost.
Worked Example
A standard chiller costs 10,000 to install and 2,000/yr to run; an efficient unit costs 15,000 but only 1,000/yr. The incremental cost is 5,000 and the annual saving is 1,000, so the simple payback is 5,000 / 1,000 = 5 years. Over a 10-year study at a 5% discount rate (no escalation) the uniform-series present-worth factor is [1 − 1.05^-10] / 0.05 = 7.7217, so the present value of the savings is 1,000 × 7.7217 = 7,721.74. The NPV is 7,721.74 − 5,000 = 2,721.74 and the SIR is 7,721.74 / 5,000 = 1.544 (> 1, so the upgrade pays). The discounted payback is about 5.9 years.
Formulas
- Present value of a future cost
PV_t = cost_t / (1 + d)^t- Uniform-series present-worth (annuity) factor
UPW = [1 - (1 + d)^-N] / d (= N when d = 0)- Life-cycle cost of an option
LCC = capital + sum_{t=1..N} annual * (1+e)^(t-1) / (1+d)^t- Payback
simple = incremental / annual_savings ; discounted = year cumulative PV(savings) >= incremental- NPV and SIR
NPV = PV(savings) - incremental ; SIR = PV(savings) / incremental
Standards & References
- ASTM E917 — Measuring Life-Cycle Costs of Buildings and Building Systems
- ISO 15686-5 — Buildings and constructed assets, life-cycle costing
- NIST Handbook 135 — Life-Cycle Costing Manual (FEMP)
- Engineering economy: discounted cash flow, NPV, IRR, payback
Frequently Asked Questions
What is the difference between simple and discounted payback?
Simple payback divides the extra cost by the annual saving and ignores the time value of money. Discounted payback discounts each year of savings before accumulating them, so it is always longer than simple payback when the discount rate is positive.
What does the savings-to-investment ratio (SIR) tell me?
SIR is the present value of the savings divided by the incremental investment. An SIR greater than 1 means the discounted savings exceed the extra cost, so the upgrade is economically justified; the higher the SIR, the better the return.
Should I use a real or nominal discount rate?
Use a real (inflation-adjusted) discount rate together with real cost escalation, or a nominal rate with nominal cash flows — but do not mix them. The escalation rate here represents the real change in energy/maintenance cost above general inflation.
Which option is better, the lower LCC or the higher NPV?
They give the same ranking. The option with the lower life-cycle cost is the alternative whose LCC savings (baseline LCC minus alternative LCC) is positive, which equals the NPV of the upgrade in this tool.