Guo Fangyuan 6/13/2009

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Hello Charlie,
How do we calculate the situation "annualize the $100 incremental cost over the 10 year lifetime of the efficient refrigerator" as shown in excersice 4.3.2 of LEAP online?
Thanks,
Guo Fangyuan

Charlie Heaps 6/13/2009
 

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Hi Fangyuan

In the Demand Cost tab, set the cost method to "Activity Cost" and then enter an expression as follows:

AnnualizedCost(CapitalCost, Lifetime)

In your case you would write:

AnnualizedCost(100, 10)

This annualizes the $100 capital cost over a 10 year period using a standard present value formula and applying the standard discount rate set in the General: Basic Paramters: Default Units screen.

Alternatively you can override the standard discount rate and also specify an operating and maintenance (O&M) cost that wont be annualized using this form:

AnnualizedCost(CapitalCost, Lifetime, DiscountRate, OMCost)

The levelized cost per is calculated by using a present value calculation to annualize the capital cost. For more on present value, see this:
http://en.wikipedia.org/wiki/Present_value

> Hello Charlie,
> How do we calculate the situation "annualize the $100 incremental cost over the 10 year lifetime of the efficient refrigerator" as shown in excersice 4.3.2 of LEAP online?
> Thanks,
> Guo Fangyuan

Tanel Laasma 12/20/2010
 

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Hello Charlie,

I have done in excersice 4.3.2 like you wrote in your answer to Fangyuan: "In your case you would write: AnnualizedCost(100, 10) "
I got the answer 13$ per household. In the excersice file the answer is 30$. But there is no formula, how the 30$ came.
Could you please give some insight, how the 30$ is calculated?

Tory Clark 12/20/2010
 

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Hi Tanel,

The equation you have is correct:

AnnualizedCost(100, 10)

This annualizes a $100 capital cost over a lifetime of 10 years, which is what the exercise specifies.

It seems like the file we have on the website has not been updated to include this equation. Thanks for bringing this to our attention.

In general, the training exercises and files are intended to introduce users to data entry, equations and concepts in LEAP. At times your results may vary from those in the training exercises based on rounding or differences in how you interpreted the assumptions in the materials.

Best,

Tory