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Use the capitalized method of analysis. What is the present cost of a project. The project...

Use the capitalized method of analysis.

What is the present cost of a project.

The project has an initial cost of $50,000

annual expenditures of $7000

major overhauls costing $20000 every 12 years

The interest rate is 12%

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Answer #1

Use the capitalized method of analysis.

What is the present cost of a project.

The project has an initial cost of $50,000

annual expenditures of $7000

major overhauls costing $20000 every 12 years

The interest rate is 12%

Capitalized Cost is the summation of the first cost and the present worth of the annual cash disbursements assumed to continue upto infinite period.

Capitalized cost = Initial cost + annual disbursements/rate of interest

Capitalized cost = I + A/i

Annual overhauls cost = $20000 (A/F, 12%, 12)

Annual overhauls cost = $20000 (0.0414) = 828

Annual cost = 7000 + 828 = 7828

Capitalized cost = $50,000 + 7828 / .12

Capitalized cost = $50,000 + 65233.33

Capitalized cost =115, 233.33

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