ASTM E1074-06e1

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Designation: E 1074 – 06
Standard Practice for
Measuring Net Benefits and Net Savings for Investments in
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Buildings and Building Systems
This standard is issued under the fixed designation E 1074; the number immediately following the designation indicates the year of
original adoption or, in the case of revision, the year of last revision. A number in parentheses indicates the year of last reapproval. A
superscript epsilon (e) indicates an editorial change since the last revision or reapproval.
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e NOTE—Footnotes updated editorially in August 2007.
INTRODUCTION
The net benefits (NB) and net savings (NS) methods are part of a family of economic evaluation
methods that provide measures of economic performance of an investment over some period of time.
Included in this family of evaluation methods are life-cycle cost analysis, benefit-to-cost and
savings-to-investment ratios, internal rates of return, and payback analysis.
The NB method calculates the difference between discounted benefits and discounted costs as a
measure of the cost effectiveness of a project. The NS method calculates the difference between
life-cycle costs as a measure of the cost-effectiveness of a project. The NB and NS methods are
sometimescalledthenetpresentvaluemethod.TheNBandNSmethodsareusedtodecideifaproject
is cost effective (net benefits greater than zero, or net savings greater than zero), or which size, or
design, competing for a given purpose is most cost effective (the one with the greatest net benefits, or
the one with the greatest net savings).
1. Scope Buildings and Building Systems
E 1185 Guide for Selecting Economic Methods for Evalu-
1.1 This practice covers a recommended procedure for
ating Investments in Buildings and Building Systems
calculating and interpreting the net benefits (NB) and net
E 1369 Guide for Selecting Techniques for Treating Uncer-
savings(NS)methodsintheevaluationofbuildingdesignsand
tainty and Risk in the Economic Evaluation of Buildings
systems.
and Building Systems
2. Referenced Documents
E 1765 Practice for Applying Analytical Hierarchy Process
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(AHP) to Multiattribute Decision Analysis of Investments
2.1 ASTM Standards:
Related to Buildings and Building Systems
E 631 Terminology of Building Constructions
E 1946 Practice for Measuring Cost Risk of Buildings and
E 833 Terminology of Building Economics
Building Systems
E 917 PracticeforMeasuringLife-CycleCostsofBuildings
E 2204 Guide for Summarizing the Economic Impacts of
and Building Systems
Building-Related Projects
E 964 Practice for Measuring Benefit-to-Cost and Savings-
2.2 ASTM Adjuncts:
to-Investment Ratios for Buildings and Building Systems
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Discount Factor Tables
E 1057 Practice for Measuring Internal Rate of Return and
Adjusted Internal Rate of Return for Investments in Build-
3. Terminology
ings and Building Systems
3.1 Definitions—For definitions of terms used in this
E 1121 Practice for Measuring Payback for Investments in
practice, refer to Terminologies E 631 and E 833.
1 4. Summary of Practice
This practice is under the jurisdiction of ASTM Committee E06 on Perfor-
mance of Buildings and is the direct responsibility of Subcommittee E06.81 on
4.1 This practice is organized as follows:
Building Economics.
4.1.1 Section 2, Referenced Documents—Lists ASTM stan-
Current edition approved April 1, 2006. Published April 2006. Originally
dards referenced in this practice.
approved in 1985. Last previous edition approved in 2004 as E 1074 – 04.
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For referenced ASTM standards, visit the ASTM website, www.astm.org, or
contact ASTM Customer Service at service@astm.org. For Annual Book of ASTM
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Standards volume information, refer to the standard’s Document Summary page on
Available from ASTM International Headquarters. Order Adjunct No.
the ASTM website. ADJE091703.
Copyright © ASTM International, 100 Barr Harbor Drive, PO Box C700, West Conshohocken, PA 19428-2959, United States.
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E 1074 – 06
TABLE 1 Calculation of Net Benefits
A
Net Cash Flow SPV Factor
Year, t Benefits, B, dollars Costs, C , dollars PVNB, dollars
t t
B − C , dollars fori=15 %
t t
0 0 10 000 −10 000 1.000 −10 000
1 4 000 3 000 +1 000 0.8696 +870
2 11 500 4 500 +7 000 0.7561 +5 293
3 10 000 4 000 +6 000 0.6575 +3 945
4 8 000 5 000 +3 000 0.5718 +1 715
Total 33 500 26 500 +7 000 +1 823
A
TofindthePVNBofthenetcashflowforeachdiscountingperiod,thesinglepresentvalue(SPV)discountfactorismultipliedtimesthenetcashflow.Foranexplanation
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of discounting factors and how to use them, see Discount Factor Tables, adjunct to Practice E 917 .
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4.1.2 Section 3, Definitions—Addresses definitions of terms 6.1.6 Compute NB (NS) and compare alternatives, and
used in this practice. 6.1.7 Make final decision, based on NB (NS) results as well
4.1.3 Section 4, Summary of Practice—Outlines the
...