Cost of Excess Capacity
A project uses existing warehouse and requires a new one to be built in
Year 5 rather than Year 10. A warehouse costs 100 & lasts 20 years.
Equivalent annual cost @ 10% = 100/8.5 = 11.7
0... 5 6... 10 11...
With project 0 0 11.7 11.7 11.7
Without project 0 0 0 0 11.7
Difference 0 0 11.7 11.7 0
PV extra cost = + +... + = 27.6^ 11.7^ 11.7^ 11.7
(1.1)^6 (1.1)^7 (1.1)^10