Appraise an investment by discounted cash flow: net present value (NPV), whole-life cost, and simple + discounted payback.
Real-terms method per BS ISO 15686-5. Tender-stage indicative. Verify against project financials.
For appraisal guidance only. Always verify with a qualified engineer or quantity surveyor.
About this lifecycle cost calculator
This free lifecycle cost calculator appraises an investment using discounted cash flow, returning the net present value (NPV), the whole-life (life-cycle) cost, and both the simple and discounted payback periods. Enter the up-front capital cost, the annual saving or benefit it delivers, any annual running cost, the real discount rate and the study period, and the calculator values the option in today’s money. It is aimed at UK building-services engineers, energy assessors and quantity surveyors comparing capital options, a heat pump against a boiler, LED against fluorescent, or insulation against business-as-usual, at tender or feasibility stage. All figures are computed in your browser; nothing is uploaded.
How lifecycle cost and NPV are calculated
The method follows the net-present-value approach of BS ISO 15686-5:2017 (life-cycle costing), worked in real terms, inflation excluded, consistent with a real discount rate. The capital cost sits at year 0 and is not discounted; annual cash flows fall at year-end over years t = 1…N, each discounted by DFₜ = 1 / (1 + r)ⁿ. The present value of savings and of running costs is the sum of those discounted flows. Life-cycle cost = capital + PV(running) and NPV = PV(savings) − life-cycle cost; an NPV above zero means the option is cost-effective over the period. Simple payback divides the capital by the net annual cash flow, while discounted payback interpolates the year the cumulative discounted net first repays the capital. The default 3.5% rate is the HM Treasury Green Book Social Time Preference Rate for years 1–30; ISO 15686-5 and the EU cost-optimal methodology use around 3%.
Frequently asked questions
What discount rate should I use?
For UK public-sector appraisal use the Green Book Social Time Preference Rate of 3.5% real for years 1–30. ISO 15686-5 and the EU cost-optimal methodology typically use about 3% real, and private investors may apply their own hurdle rate. Set the rate to 0% for an undiscounted sensitivity check.
What is the difference between simple and discounted payback?
Simple payback divides the capital cost by the net annual cash flow, ignoring the time value of money. Discounted payback accumulates each year’s discounted net cash flow and reports when it repays the capital, so it is always the longer, and more realistic, of the two.
Should I enter costs in real or nominal terms?
Enter all costs in real (today’s-money) terms, with inflation excluded, to match the real discount rate per ISO 15686-5. If you work in nominal terms you must use a nominal discount rate instead, mixing the two distorts the result.