Total Element Long Run

Incremental Cost (TELRIC)

Total Element Long Run Incremental Cost (TELRIC)
An ILEC purchases a switch for $10,000 which will serve 100
lines, so that k0 is $100 per line. Suppose it has a useful life
of five years, i.e., T = 5, and no salvage value. Finally, assume
that the firms cost of capital, , is ten percent, that it will
cost $500 per year to operate the switch, i.e., DRCt = $5 per
line, and that DNRCt and CRCt are zero.
Answer
Then, from the formula above, the amortized value of the
$10,000 investment is $2,637.98 per year, or $26.38 per
line. With direct recurring costs of $5, zero salvage value,
zero direct non-recurring costs, and zero common recurring
costs, the TELRIC price would be $31.38 per line per year.