ABSTRACT
The discipline of economics plays an important role in life cycle costing. In order to calculate life cycle cost of items various types of economics related information is required.
Life cycle costing requires that future costs have to be calculated by taking into consideration the time value of money. This is due to the fact that same sum of money received or spent at various different points in time will have different values. More specifically, the sum of money in today's dollars, usually, will not have the same value a year later and thereon. Taking this one step further, one may state that the future value of present dollars will be greater because of earned interest or smaller because of inflation. Similarly, the present value of a future sum of money would be generally less. In life cycle costing, the future costs such as operation and maintenance have to be converted to their appropriate values before adding them to the item's procurement cost. There are a number of formulas developed in economics to convert money from one point of time to another. In life cycle costing studies such formulas are indispensible.
