Question

8) Determine the capitalized cost of an alternative that has a first cost of $155,000, an annual maintenance cost of $72,000, and a salvage value of $78,000 after its 10-year life. Use an interest rate of 6%. a. a) $187,142 b.c) $1,256,890 c. d) $1,452,367 d. b) 5871,000 QUESTIONS 9) The construction cost of a park is $600,000. Annual maintenance and operating costs are $120,000 per year. At an interest rate of 10% per year, the capitatlized cost of the park is nearest: a. c) $1,200,000 b. d) $1,800,000 c. a) S600,000 d. b) 5720,000

Answer 1

8. First Cost = 155,000

Annual Maintenance Cost = 72,000

Salvage Value = 78,000

Life = 10 years

Interest Rate = 6%

Calculate Capitalized Cost.

Step 1 – Calculate the Annual Worth of the investment

AW = 155,000 (A/P, 6%, 10) + 72,000 – 78,000 (A/F, 6%, 10)

AW = 155,000 (0.13587) + 72,000 – 78,000 (0.07587) = 87,141.99 or 87,142

Step – 2 Calculate Capitalized Cost

CC = Annual Worth ÷ Interest rate

CC = 87,142 ÷ 0.10 = 871,420

Answer - 871,000 (nearest value given)

9. Initial Cost = 600,000

Annual Maintenance & Operating Cost = 120,000

Interest = 10%

Calculate Capitalized Cost

Capitalized Cost = Initial Cost + (Annual Maintenance & Operating Cost ÷ Interest Rate)

Capitalized Cost = 600,000 + (120,000 ÷ 0.10)

Capitalized Cost = 600,000 + 1,200,000

Capitalized Cost = 1,800,000

Answer – 1,800,000