Whole life costing worked examples
Worked example 2 - elemental level (including tax)
Maintenance option: with v without cleaning gantry
This example is kindly provided by Gerald Hall, a chartered surveyor with experience in this area.
The following figure compares 2 options, firstly to provide a cleaning gantry and secondly to omit the gantry. The capital cost and costs associated with anticipated maintenance have been calculated using normal cost-estimating techniques. The information is summarised in Table 2.
Assumed criteria
|
Building life |
25 years |
|
VAT assumed to remain at current levels, with the client being an 'end user' |
17.5% |
|
Gantry capital cost |
£30,000 |
|
Residual value of gantry |
£2,000 |
|
Capital cost for opening lights in lieu of gantry |
£5,000 |
|
Discount rate (assuming the interest rate will average 11% over 25 years and the inflation rate 6%) |
5% |
|
Corporation tax |
33% |
Taxation calculation
The capital cost for plant and machinery receives a 25% reducing balance. Maintenance and running costs receive 100% allowance.
| Year 1 with gantry calculation | |||
| Capital | £32,250 x 25% x 33% |
= |
2,908 |
| Maintenance | £881 x 33% |
= |
291 |
|
3,199 |
|||
| Year 2 with gantry calculation | |||
| Capital | £32,250 less 25% x 25% x 33% |
= |
2,181 |
| Maintenance | £881 x 33% |
= |
291 |
|
2,472 |
|||
The methodology applies for the rest of the 25 years as shown in the calculation detailed in Part 2, Section 2 (pages 21-24) of the old Surveyors' Construction Handbook.
The client initially considered that the gantry would pay for itself, thanks to savings in maintenance and cleaning costs.
However, the calculation indicated the following:
- with gantry investment: £36,510 present value
- without gantry investment: £26,447 present value