OPERATING COSTS WITH INFLATION

[DebbieBraide]

Please I would like to know how the operating costs with inflation is calculated. For example a project with OPEX of 100,000 GBP with lifetime of 5 years and inflation rate of 10%. What formula do you use to get the yearly OPEX?

[Hizir Apaydin]

Hello,

The inflation rate is applied after first year :

OPEX year 1 : 100 GBP

OPEX year 2 : 100 + (100*10/100) = 110 GBP

OPEX year 3 : 110 + (110*10/100) = 121 GBP

OPEX year 4 : 121 + (121 *10/100) = 133 GBP

OPEX year 5 : 133 + (133 *10/100) = 146 GBP

Thus the average OPEX on project life is (100+110+121+133+146) / 5 = 122 GBP

Regards