04/06/2024

CAPITALIZED COST AND ANNUAL ENGINEERING ECONOMICS

ENGS31

COST May 10, 2024 | ES 302

CAPITALIZED COST, K
CAPITALIZED COST AND
- Capitalized cost is an application of perpetuity. The
ANNUAL COST capitalized cost of a project or structure is the sum of the first
cost (FC) and the present worth of all future payments and
replacements which is assumed to continue forever.

BSCE 2-1 | May 10, 2024 | 7:00 AM – 9:00 AM

- If a project requires a first cost of FC, annual operation
and maintenance of OM for n years, a salvage value of SV
Engr. LORDLEY M. ABELLAR after every n years, and a replacement cost of RC after every
Assistant Professor I end of n years, then the capitalized cost is:
Department of Civil Engineering and Architecture

CAPITALIZED COST AND ANNUAL ENGINEERING ECONOMICS

ENGS31
CAPITALIZED COST AND ANNUAL ENGINEERING ECONOMICS
ENGS31

COST May 10, 2024 | ES 302 COST May 10, 2024 | ES 302

CAPITALIZED COST, K (Cont.) Example No.1

Capitalized cost, K A machine costs P300,000 new, and must be replaced at the
𝑂𝑀 𝑅𝐶 − 𝑆𝑉 end of each 15 years. If the annual maintenance required is
𝐾 = 𝐹𝐶 + + P5,000.00, find the capitalized cost, if money is worth 5% and
𝑖 (1 + 𝑖) −1
the final salvage value is P50,000.
If RC is not specified, use RC = FC.

Capitalized cost may also be defined as the first cost plus the
present worth of annual maintenance and operation cost plus
the present worth of depreciation assumed to continue forever.
Department of Civil Engineering and Architecture Department of Civil Engineering and Architecture
 04/06/2024

CAPITALIZED COST AND ANNUAL ENGINEERING ECONOMICS

ENGS31
CAPITALIZED COST AND ANNUAL ENGINEERING ECONOMICS
ENGS31

COST May 10, 2024 | ES 302 COST May 10, 2024 | ES 302

ANNUAL COST, AC Example No.2

- The annual cost (AC) of a project is:
AC = Annual interest on investment + Annual operation and
maintenance + Annual depreciation cost
In relation to capitalized cost, AC is:
Annual cost, 𝐴𝐶 = 𝐾𝑖
𝑅𝐶 − 𝑆𝑉 𝑖
𝐴𝐶 = 𝐹𝐶 𝑖 + 𝑂𝑀 +
1+𝑖 −1
Department of Civil Engineering and Architecture
The purchase of a motor for 6000 and a generator for 4000 will
allow a company to produce its own energy. The configuration
can be assembled for 500. The service will operate for 1600
hours per year for 10 years. The maintenance cost is 300 per
year and the cost to operate is 0.85 per hour for fuel and
related costs. The salvage value is 400. Using straight-line
depreciation, what is the annual cost for the machine.
Department of Civil Engineering and Architecture