Lecture chap6part2-1

Lecture chap6part2-1 - CapitalCostsversus OperatingCosts...

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   Contemporary Engineering Economics, 4 th   edition, © 2007 Capital Costs versus  Operating Costs Lecture No.20 Chapter 6 Contemporary Engineering Economics Copyright © 2006
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   Contemporary Engineering economics, 4 th   edition, © 2007 Annual Equivalent Cost When only costs are involved, the AE method is called the annual equivalent cost . Revenues must cover two kinds of costs: Operating costs and capital costs . Capital costs Operating costs + Annual Equivalent Costs
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   Contemporary Engineering economics, 4 th   edition, © 2007 Capital (Ownership) Costs Def : Owning an equipment is associated with two transactions—(1) its initial cost ( I ) and (2) its salvage value ( S ). Capital costs : Taking these items into consideration, we calculate the capital costs as: 0 1 2 3 N 0 N I S CR( i ) CR i I A P i N S A F i N I S A P i N iS ( ) ( / , , ) ( / , , ) ( )( / , , ) = - = - +
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   Contemporary Engineering economics, 4 th   edition, © 2007
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Lecture chap6part2-1 - CapitalCostsversus OperatingCosts...

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