Question

2. Atunnel to transport water through the Lubbock mountain range initially cost $1,000,000 and has expected maintenance costs that will occur in a 6-year cycle as shown. End of year: 1 Maintenance $ 35,000 35,000 The capitalized cost at 8% interest is closest to: 35,000 45,000 $5,000 35,000 45,000 45,000 60,000 60,000 a) $1,003,300: b) $1,518,400: c) $41,468.8 d) $13,018,350: e) $10, 250, 100: f) $42,500

Answer 1

ANSWER:

I = 8%

CC = Initial cost + (Maintenance cost from year 1 to year 3(p/a,i,n) + maintenance cost in year 4(p/f,i,n) + maintenance cost in year 5(p/f,i,n) + maintenance cost in year 6(p/f,i,n))(a/p,i,n) / i

CC = 1,000,000 + (35,000(P/A,8%,3) + 45,000(P/F,8%,4) + 45,000(P/F,8%,5) + 60,000(P/F,8%,6)) (a/p,8%,6) / 8%

CC = 1,000,000 + (35,000 * 2.577 + 45,000 * 0.735 + 45,000 * 0.6806 + 60,000 * 0.6302) * 0.2163 / 8%

CC = 1,000,000 + (90,195 + 33,075 + 30,627 + 37,812) * 0.2163 / 8%

CC = 1,000,000 + (191,709 * 0.2163 / 8%)

CC = 1,000,000 + (41,468.8 / 8%)

CC = 1,000,000 + 518,360

CC = 1,518,360

SO OPTION B IS THE RIGHT ANSWER.