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ASSESSMENT 2
REPORT LIFE CYCLE COSTING

Total Word Count: 2340

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Table of Contents
1. EXECUTIVE SUMMARY....................................................................................3

2. INTRODUCTION............................................................................................. 4

3. ASSUMPTIONS.............................................................................................. 4

4. COSTS......................................................................................................... 5

4.1 Capital and Other Initial Costs........................................................................5

4.1.1 Manufacturer's Recommended List Price (RRP).............................................5

4.1.2 Delivery Fees......................................................................................7

4.1.3 Luxury Car Tax....................................................................................7

4.1.4 Stamp Duty Costs................................................................................8

4.1.5 Total Registration Cost...........................................................................9

4.1.6 Motor Vehicle Insurance........................................................................10

4.2 Operating Costs.......................................................................................11

4.2.1 Fuel Cost......................................................................................... 11

4.2.2 Servicing and Maintenance Costs............................................................12

4.2.3 Finance Costs...................................................................................13

4.2.4 Other Annual Costs.............................................................................14

5. DEPRECIATION AND RESALE VALUE.................................................................14

6. NET PRESENT VALUE.....................................................................................16

6.1 Estimation of the Discount Rate.....................................................................16

6.2 NPV Tables............................................................................................17

8. REFERENCES...............................................................................................20
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1. EXECUTIVE SUMMARY
A car is a long-term asset that is associated with lifetime costs. It is important to consider
other lifetime costs other than the purchase price. Life Cycle Costing (LCC) is used to
estimate the lifetime costs of an asset. This report used the LCC to compare costs of
buying a 2020 Mercedes-Benz GLC 300 4MATIC (petrol) and a 2020 Mercedes-Benz
GLC 300E 4MATIC over six years. The report identified costs such as recommended
retail price, registration, delivery, insurance, fuel, and taxes, among other costs. The
costs were then discounted to determine the NPV of lifetime costs. The hybrid model’s
drive-away price is $104,236, which is $7,000 more than that price of the petrol model.
However, the NPV of lifetime costs of the hybrid model is lower than that of the petrol
model. Therefore, the family should purchase the hybrid model.
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2. INTRODUCTION
The choice of the car model has long-term implications beyond the cost of purchase. Life
Cycle Costing (LCC) is a technique for evaluating product costs over a given period. The
technique incorporates all product costs, including capital and ownership costs, maintenance
costs, insurance, operating, and disposal costs, among other costs. After identifying total
product costs and their timing, the life cycle cost technique uses the net present value (NPV)
to determine the current equivalent of the lifetime costs. This makes it easier to compare the
costs of more than one alternative, thereby making sound decisions.

A family is considering purchasing a 2020 Mercedes-Benz GLC 300 4 MATIC (Petrol) or

2020 Mercedes-Benz GLC 300E 4 MATIC (Electric/Hybrid). This report uses LCC to
determine the total costs of the two models over six years. The report identifies the total
costs of the models throughout the six years and uses the NPV technique to compare the
two models. Based on the analysis, the report recommends the best model.

3. ASSUMPTIONS
The following assumptions have been made during the LCC analysis:
i. The family will use the vehicle for private use only. This implies that there are no tax
implications associated with using the vehicle for business purposes.
ii. Nominal interest rates, Inflation rate, and the average distance covered annually are
expected to remain constant over the six years under analysis.
iii. For purposes of calculating comprehensive car insurance premium, the driver is a
male born on 20 January 1987 with ten years of driving experience.
iv. The vehicle will be sold at the end of the sixth year. Therefore, comprehensive
insurance and annual license renewal are not required end of Year 6,
v. The cost of purchasing the car will be funded through a car loan from loans.com.au.
The loan is repayable in 60 months (5 years) with an annual interest rate of 3.29%
for the fuel-efficient car and 3.99% for the petrol SUV.
vi. The family lives in Parkville Suburb, Melbourne, Victoria.
vii. The vehicle will be subject to the Transport Accident Commission (TAC) rules and
regulations.
viii. There will be no provision for extraordinary repairs that require the replacement of
major parts.
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Table 1 shows some technical specifications of the two models.

Table 1: Technical Descriptions

GLC 300 4 MATIC GLC 300E 4 MATIC

Engine and Performance
Rated output (kW (hp)) 190 at 5800 - 6100 155 at 5500
Rated torque 370 at 1800 - 4000 350 at 1800 - 4000
Top Speed (km/h) 240 230
Compression ratio 10.5:1 9.8:1
Acceleration 0-100km/h (s) 6.2 5.7
Fuel and emissions
Fuel 95 RON 95 RON
Tank capacity 66/7 50/7
Fuel consumption, Combined (L/100km) 8.2 2.4
CO2 3missions, combined (g/km) 184 53
Powertrain and transmission
Drive System Four-wheel Four-wheel
Automatic Transmissions 9G-TRONIC 9G-TRONIC
Quantities, dimensions & weights
Boot capacity 550 395
Turning circle (m) 11.8 11.8
Kerb weight 1844/600 2094/585
Perm. GVM (Kg) 2400 2610
(Mercedes-Benz, 2021)

4. COSTS
4.1 Capital and Other Initial Costs
Capital costs are the initial costs of acquiring a vehicle. They include the purchase price
(manufacturer's recommended list price), delivery fees, government licensing fees, and
mandatory third-party insurance. The sum of capital costs gives the drive-away price of the
motor vehicle.

4.1.1 Manufacturer's Recommended List Price (RRP)

This is the price charged by the manufacturer, excluding all the other capital costs. The
recommended retail price for the 2020 Mercedes-Benz GLC 300 4 MATIC (Petrol) is
$84,190, while that of the 2020 Mercedes-Benz GLC 300E 4 MATIC (electric/Hybrid) is
$91,199 (Mercedes-Benz, 2021). The RRP is inclusive of GST.
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(Mercedes-Benz, 2021)
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4.1.2 Delivery Fees

Delivery fees include the cost of shipping the vehicle to a dealer and the dealer's cost of
preparing the vehicle for sale. They include costs such as detailing, mechanical checks, pre-
sale wash/wax, and paperwork. The recommended retailer delivery fee is $2,750 for each of
the models (Mercedes-Benz, 2021).

4.1.3 Luxury Car Tax

The Australian Taxation Office charges luxury tax for sales of cars whose values exceed the
luxury car tax (LCT) threshold. The LCT value includes the retailers' recommended price
(RRP), plus GST and any customs duty, delivery fees, and other standard and statutory
warranties (Ato.gov.au, 2021). The LCT threshold for the 2021/2022 financial year has been
set at $79,659 for fuel-efficient vehicles and $69,152 for other vehicles. A fuel-efficient
vehicle is one whose fuel consumption does not exceed seven litres per 100 kilometres
(Ato.gov.au, 2021). The Mercedes-Benz GLC 300 4 MATIC model's fuel consumption is 8.2
litres/100km, while the Mercedes-Benz GLC 300E 4 MATIC model's fuel consumption is 2.4
litres/100km. Therefore, the GLC 300E 4 MATIC is fuel-efficient, while the GLC 300 4
MATIC is not fuel-efficient.

(Ato.gov.au, 2021)
Table 2: Luxury Tax Calculation
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  GLC 300 4 MATIC GLC 300E 4 MATIC

RRP (Including GST) $84,190.00 $91,999.00
Delivery fee (including GST) $2,750.00 $2,750.00
LCT value $86,940.00 $94,749.00
LCT threshold ($69,152.00) ($79,659.00)
Value applicable to LCT $17,788.00 $15,090.00
LCT $5,336.40 $4,527.00

4.1.4 Stamp Duty Costs

Stamp duty is paid to state governments charge on purchase of a new or used vehicle. The
rate on stamp duty varies from one state to another. In Victoria, the duty is based on whether
a vehicle is a passenger or a non-passenger car, whether it is a new or previously registered
car, and whether it is a green car. A green car is any car that emits less than 120g/kg of CO 2
(State Revenue Office, 2021). Victoria's State Revenue Office (2021) defines a passenger
car as one principally made for carrying passengers provided it does not carry more than
eight passengers, including the driver, and is not designed to carry goods. The stamp duty
rate for new green passenger cars is $8.40 per $200 of dutiable value (State Revenue
Office, 2021). For new non-green passenger cars, the stamp duty rate is $10.40 per $200 of
dutiable value. The dutiable value is the sum of RRP, delivery fees, and luxury car tax,
inclusive of GST (State Revenue Office, 2021).
Table 3: Determination of Stamp duty

  GLC 300 4 MATIC GLC 300E 4 MATIC

Green car No Yes
RRP (Including GST) $84,190.00 $91,999.00
Delivery fee (including GST) $2,750.00 $2,750.00
Luxury car tax $5,336.40 $4,527.00
Dutiable value $92,276.40 $99,276.00
Stamp duty rate/$200 dutiable value $10.40 $8.40
Stamp Duty $4,804.80 $4,174.80
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(E-business.sro.vic.gov.au, 2021)

4.1.5 Total Registration Cost

Total registration cost includes registration fees, taxes, and levies, as well as comprehensive
third-party insurance. In Victoria, total registration fees vary from $726 to $845
(Vicroads.vic.gov.au., 2021). The annual Transport Accident (TAC) charge is $539 (effective
1 July 2021).

Table 4: Registration costs

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  GLC 300 4 MATIC GLC 300E 4 MATIC

Registration $884.30 $784.30
Annual TAC charge $539.00 $539.00
Total Registration $1,423.30 $1,323.30

4.1.6 Motor Vehicle Insurance

A comprehensive insurance policy is necessary to cover the buyer from damages caused by
their own vehicle or other parties' vehicles. Insurance premiums for GLC 300 4 MATIC will
be $1,340.93, while that of the GLC 300E 4 MATIC will be $1,243.69 (RAC Website, 2021).
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4.2 Operating Costs

4.2.1 Fuel Cost
The total annual fuel consumption is determined by the average annual distance travelled
per car and the fuel consumption. According to the Australian Bureau of Statistics (2020),
passenger cars in Victoria travelled an average distance of 11,400 kilometres in 2020.
Table 5: Fuel Consumption

  GLC 300 4 MATIC GLC 300E 4 MATIC

Total distance travelled annually (km) 11,400 11,400
Fuel consumption, Combined (L/100km) 8.2 2.4
Fuel price per litre (Petrol/95 RON) $1.31 $1.52
Total Annual Fuel Cost $1,224.59 $415.87
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4.2.2 Servicing and Maintenance Costs

Motor vehicle servicing is necessary to maintain its roadworthiness and value. A well-
serviced vehicle is likely to get a higher resale value than a poorly serviced vehicle. Regular
maintenance, including parts replacement, is also recommended. It is recommended to
service a Mercedes-Benz once every 12 months unless it covers more than 15,000km per
year. Due to the uncertainty of costs in servicing luxury vehicles, the buyer is advised to
purchase a premium service plan with Mercedes-Benz. The plan covers general servicing
costs as well as parts replacement. The Service plan for GLC classes costs $2,150 for three
services and $4,650 for an extra 5th service. The $4,650 plan is suitable since it will cover
five years. The plan has to be purchased within 12 months after buying the car.
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4.2.3 Finance Costs

The purchase of the car will be financed through a loan. Therefore, the family will incur an
interest expense (finance cost). The finance cost is the difference between the principal of
the loan and the total amount paid. The hybrid car qualifies for a green loan from
loans.com.au at 3.29%, payable monthly for five years. The petrol SUV is not a green car,
and the loan interest is 3.99% p.a, payable monthly for five years. Amortization schedules
were developed for each of the two loans to determine the total annual interest expenses for
the five years.
Table 6: Interest/Finance Cost

Year GLC 300E 4MATIC GLC 300 4MATIC

1 $3,137.06 $3,581.02
2 $2,485.74 $2,846.90
3 $1,812.66 $2,082.96
4 $1,117.10 $1,287.96
5 $398.30 $460.66
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4.2.4 Other Annual Costs

Other annual costs include license/registration renewal and motor vehicle insurance as
outlined in sections 4.1.5 and 4.1.6, respectively.

5. DEPRECIATION AND RESALE VALUE

The resale value is the estimated market price of the vehicle after six years. It is determined
by deducting total depreciation from the drive-away price of the vehicle. 'Mymoneycalculator'
estimates the monthly depreciation, total depreciation, and resale value of the two models,
as shown in Table 7.

Table 7: Resale Value

GLC 300E 4MATIC GLC 300 4MATIC

Drive-away price $97,970 $104,276
Total depreciation for the 6 years $46,360 $49,325
Resale Value $51,610 $54,911
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6. NET PRESENT VALUE

The NPV techniques determine the current equivalent of future cash flows. It is obtained by
discounting the expected cash flows at the appropriate discount rate. The technique is used
since current cash flows are not of the same value as cash flows in the future.

6.1 Estimation of the Discount Rate

The discount rate is the rate used to discount future cash flows to get the present value. It is
the opportunity cost of capital. For this analysis, the inflation-adjusted bank interest rate on
savings is used as the discount rate. The current highest interest rate is 1.5%. The average
quarterly inflation rate from the first quarter of 2018 to the third quarter of 2021 is 0.4%.
1+ nominal rate 1.015
Discount rate = -1 = – 1 = 1.0956%
1+ Inflation 1.004

(Australian Bureau of Statistics, 2021)

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6.2 NPV Tables

Mercedes-Benz GLC 300E 4MATIC
  Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Purchase Costs              
Recommended Retail Price $91,999.00            
Delivery fee $2,750.00            
Luxury car tax $4,527.00            
Total registration $1,323.30            
Stamp duty $4,174.80            
Comprehensive Motor Insurance $1,263.69            
Service Plan $4,650.00            
Operating Costs              
Fuel cost   $415.87 $415.87 $415.87 $415.87 $415.87 $415.87
Finance cost/Interest on loan   $3,137.06 $2,485.74 $1,812.66 $1,117.10 $398.30  
Comprehensive Motor Insurance   $1,263.69 $1,263.69 $1,263.69 $1,263.69 $1,263.69  
License renewal, including TAC   $1,323.30 $1,323.30 $1,323.30 $1,323.30 $1,323.30  
Resale value             ($54,911.00)
Total Costs $110,687.79 $6,139.92 $5,488.60 $4,815.52 $4,119.96 $3,401.16 ($54,495.13)
Present Value Factor 1.0000 0.9892 0.9784 0.9678 0.9573 0.9470 0.9367
Present Value $110,687.79 $6,073.36 $5,370.24 $4,660.59 $3,944.18 $3,220.75 ($51,045.08)
               
Net Present Value (NPV) $82,911.84            
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Mercedes-Benz GLC 300 4MATIC

  Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Purchase Costs              
Recommended Retail Price $84,190.00            
Delivery fee $2,750.00            
Luxury car tax $5,336.40            
Total registration $1,423.30            
Stamp duty $4,804.80            
Comprehensive Motor Insurance $1,340.93            
Service Plan $4,650.00            
Operating Costs              
Fuel cost   $1,224.59 $1,224.59 $1,224.59 $1,224.59 $1,224.59 $1,224.59
Finance cost/Interest on loan   $3,581.02 $2,846.90 $2,082.96 $1,287.96 $460.66  
Comprehensive Motor Insurance   $1,340.93 $1,340.93 $1,340.93 $1,340.93 $1,340.93  
License renewal, including TAC   $1,423.30 $1,423.30 $1,423.30 $1,423.30 $1,423.30  
Resale value             ($51,610.00)
Total Costs $104,495.43 $7,569.84 $6,835.72 $6,071.78 $5,276.78 $4,449.48 ($50,385.41)
Present Value Factor 1.0000 0.9892 0.9784 0.9678 0.9573 0.9470 0.9367
Present Value $104,495.43 $7,487.77 $6,688.31 $5,876.44 $5,051.65 $4,213.47 ($47,195.54)
               
Net Present Value (NPV) $86,617.52            
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7. CONCLUSION AND RECOMMENDATION

This report used the NPV technique to determine the life cycle costs of a new Mercedes-
Benz GLC 300 4MATIC (petrol) and Mercedes-Benz GLC 300E 4MATIC (hybrid). The NPV
tables show that the present value of the LCC of Mercedes-Benz GLC 300 4MATIC over six
years is $86,617.52, while that of Mercedes-Benz GLC 300E 4MATIC is $82,911.84. It
indicates that Mercedes-Benz GLC 300E 4MATIC is a better option since the LCC over six
years is lower than that of the petrol SUV. Therefore, despite the higher purchase cost and
other initial costs, the family should purchase the Mercedes-Benz GLC 300E 4MATIC model.
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8. REFERENCES
Ato.gov.au. 2021. "Definitions - Luxury Car Tax". Ato.Gov.Au.
https://www.ato.gov.au/Business/Luxury-car-tax/In-detail/Definitions---Luxury-car-tax/.
Ato.gov.au. 2021. "Working Out the LCT On a Sale". Ato.Gov.Au.
https://www.ato.gov.au/business/luxury-car-tax/working-out-the-lct-amount/working-out-
the-lct-on-a-sale/.
Australian Bureau of Statistics. 2020. "Survey of Motor Vehicle Use, Australia, 12 Months
Ended 30 June 2020". Australian Bureau of Statistics.
https://www.abs.gov.au/statistics/industry/tourism-and-transport/survey-motor-vehicle-
use-australia/latest-release#data-download.
CarsGuide. 2021. "Mercedes-Benz Capped Price Servicing - Cost, Schedule &
Info". Carsguide. https://www.carsguide.com.au/car-advice/mercedes-benz-capped-
price-servicing-cost-schedule-info-70039.
E-business.sro.vic.gov.au. 2021. "Calculators | State Revenue Office Victoria". E-
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vehicle-duty.
Fuelwatch.wa.gov.au. 2021. "Fuelwatch". Fuelwatch.Wa.Gov.Au.
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Loans.com.auLoans.com.au. 2021. "Green Car Loans - Loans.Com.Au". Loans.Com.Au.
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gclid=CjwKCAjwz5iMBhAEEiwAMEAwGNUDFJet-
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Mercedes-Benz. 2021. "The Mercedes-AMG GLC 300 4MATIC". Driveaway.Mercedes-
Benz.Com.Au. https://www.driveaway.mercedes-benz.com.au/GLC/GLC-300.
Mercedes-Benz. 2021. "The Mercedes-AMG GLC 300 E 4MATIC". Driveaway.Mercedes-
Benz.Com.Au. https://www.driveaway.mercedes-benz.com.au/GLC/GLC-300-e.
"RAC Insurance". 2021. Racinsurance.Rac.Com.Au.
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8a3b3d90aeb9.
TheMoneyCalculator.com. 2021. "Mercedes-Benz CLC Class Depreciation
Calculator". Themoneycalculator.Com. https://www.themoneycalculator.com/vehicle-
finance/calculators/car-depreciation-by-make-and-model/MERCEDES-BENZ/
CLC_CLASS/.
Vicroads.vic.gov.au. 2021. "Vehicle Fees: Vicroads". Vicroads.Vic.Gov.Au.
https://www.vicroads.vic.gov.au/registration/registration-fees/vehicle-registration-fees.