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A short class with Sarah and her students. The other ways are under More.
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Today, we'll be starting with ownership costs. So, what are the key components we need to consider?
I think we need to calculate depreciation, right?
Exactly! We calculate depreciation using the straight-line method, where we take the initial price, deduct the salvage value, and divide that by the useful life.
What happens if we take the tire cost into account?
Great question! The tire cost is considered separately under operating costs, so don’t mix that with ownership costs. Remember, depreciation can be summarized with the formula: (Initial Price - Tire cost - Salvage Value) / Depreciation period. Let's remember it as 'D = (P - T - S) / H'.
What about taxes and insurance?
Those are calculated as a percentage of the average value of your equipment. Can anyone remember how we calculate average value?
Isn't it (P(n+1)+S(n-1))/2n?
Absolutely correct! Great job!
In summary, remember: ownership cost consists of depreciation, taxes, insurance, and investment costs, each derived through specific calculations.
Now let us move on to operating costs. What do you think is included in operating costs?
Fuel costs and consumables?
Correct! Fuel costs can be obtained from handbooks or manufacturers. What formulas do we recall to determine the fuel costs?
Is it Fuel Cost = Fuel Consumption Factor x Rated Power x Unit Fuel Cost?
Right again! But remember to adjust based on the load conditions and actual project needs. What's next about FOG?
FOG stands for Filter, Oil, and Grease, right?
Exactly! You can express this as a factor of fuel costs. And don’t forget about labor adjustments based on skill levels.
To summarize, operating costs include fuel, FOG, and maintenance—each calculated carefully to reflect actual conditions of the project.
Lastly, let’s go over the Peurifoy method, known for considering the time value of money.
I remember, it involves some different approaches for cost calculation.
Correct! There are two main approaches: the average annual investment and the time value method. Which one do we focus on in our discussions?
The time value approach since it considers the timing of cash flows.
Exactly! The purchase price can be converted into equivalent uniform costs using a uniform series capital recovery factor.
How do we calculate the equivalent uniform annual cost?
Great question! It’s done using the formula I(1+i)^n / [(1+i)^n - 1]. And we also do the same for the salvage value with a sinking fund factor.
In summation, the Peurifoy method gives you a more accurate estimation by taking time into account and providing structured calculations for both initial cost and salvage value.
A popular method for estimating equipment costs, focusing on ownership and operating costs.
This method considers the time value of money for more accurate equipment cost estimation.
Includes fuel, maintenance, consumables, and labor costs necessary for equipment operation.
Calculating depreciation involves the formula: (Initial Cost - Salvage Value) / Useful Lifespan.
De-pre-ciation, less value with time, ownership costs, make your budgeting prime.
Imagine an excavator, bought for $100K, its value drops by $90K over its life, gradually fading away as it works day by day.
Remember 'DOPE' for equipment costs: D = Depreciation, O = Operating costs, P = Purchase price, E = Equipment value.
COST = Caterpillar Operating and Salvage Terms.
Term
What is depreciation?
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Term
What does FOG stand for?
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The total cost associated with owning and operating equipment, including depreciation, taxes, and insurance.
Costs incurred in the day-to-day operation of equipment, such as fuel, maintenance, and consumables.
The reduction in value of an asset over time, often calculated using the straight-line method.
A method of calculating depreciation by dividing the difference between initial cost and salvage value over the useful lifespan.
A metric that describes how much fuel a piece of equipment uses under certain operating conditions.
A method of estimating equipment costs that accounts for the time value of money.
This section outlines the procedures for estimating total equipment costs using the Caterpillar and Peurifoy methods.
In this section, you will learn about estimating equipment costs through two commonly used methods: Caterpillar and Peurifoy. The outline details the stepwise procedures for calculating ownership and operating costs, along with practical illustrations to reinforce understanding.
In this section of the lecture, Dr. G. Indu Siva Ranjani introduces the essential elements of estimating equipment costs in construction using two prominent methodologies: the Caterpillar method and the Peurifoy method. The Caterpillar method primarily involves calculating ownership costs through straight-line depreciation, which includes initial price, salvage value, and time considerations. The section emphasizes breaking down ownership costs into depreciation, taxes, and insurance as a percentage of the average value of the equipment.
Moving on to Peurifoy’s methodology, the section emphasizes integrating the time value of money into the cost estimation process. Peurifoy’s two approaches—average annual investment and time value—are briefly discussed with the latter providing a more comprehensive analysis of cash flow over time. The section wraps up with detailed procedures for calculating fuel costs, consumables, repair costs, and estimates of tires and maintenance, guiding students through the necessary calculations to derive the total equipment cost effectively.