Discounted Cash Flow Analysis to Select Equipment

Recent interest in cost effectiveness has led to greater consideration of total overall (capital and operating) costs of equipment. A discounted cash flow analysis (DCFA) method is developed to compare total overall costs of competing equipment. An example using the technique for surface aerators in a municipal treatment plant is presented. The results show that small differences in operating efficiency are highly significant for equipment with high operation cost compared to initial cost. A sensitivity analysis is performed for the example to show the most significant variables. The general use of the DCFA method and sensitivity analysis to similarly structured problems is exemplified. Practical suggestions are given for specification writing for competitive bidding using DCFA. Considerable savings can be realized using this technique to select equipment.