COST ANALYSIS
A very practical cost analysis formula, comparing a refurbishment with a new acquisition, is presented in A Guide to Repowering, Rehabilitating and Reconditioning (IAFC) by F. Wesley Dolezal, assistant chief of the Chesterfield (VA) Fire Department. The following information is needed for the analysis:
Present Unit
Purchase price Estimated life Cost to refurb Number of extended years Resale value
Calculations:
New Unit
Estimated cost Estimated life
Present Unit
1: Purchase price 4Estimated life = Per-year capitalization.
2: Years remaining x Per-year capitalization + Cost of refurb. = Unit total
worth.
3; New’ total 4New estimated life = New per-year capitalization.*
New
1; Purchase price – Resale value of present unit = Capital investment. 2: Capital investment 4Estimated life = Per-year capitalization.*
*Compare per-year capitalization.
Example using formula:
Present Unit
1; Purchase price -4Life expectancy
SI40,000 -4 20 years
2: Years remaining (2) + Cost of refurbishing
2 X S7,000 = S14,000 + S 100,000 3: Total worth 4Years of life
= Capitalization.
= S7,000 per year. = Total worth = SI 14,000.
= New’ per-year capitalization.
= SI 6,285*
$114,000 4-7
1: Purchase price S 350.000
2: Capital investment S 330,000
New’ Unit
— Resale value
S20,000
4New unit life -4 20 Years
= Capital investment.
= S330,000.
= Per-year capitalization. = S 16,500*
Compare per-year capitalization.
Even though the capitalization per year is nearly the same, realize that any refurbishment undertaken is only delaying the inevitable; the eventual replacement of the vehicle. Delaying the purchase could as much as double the price of the replacement in the future, depending on the rate of inflation *
