Question

Determine the capitalized cost of a permanent roadside historical marker that has a first cost of $50,000 and a maintenance cost of $3,600 once every 4 years. Use an interest rate of 15% per year.

Answer 1

Calculating Capitalized Cost

Initial Cost = $50,000

Maintenance Cost at every FOUR year = $3,600

Interest Rate = 15%

Step 1 Convert the maintenance cost at every four year into annual maintenance cost.

A = F (A/F, 15%, 4)

A = $3,600 (0.20027) = $720.97

Step 2 Calculate Capitalized Cost

Capitalized Cost = Initial Cost + (Annual Maintenance Cost / Interest)

Capitalized Cost = $50,000 + ($720.97 / 0.15)

Capitalized Cost = $50,000 + $4,806.47

Capitalized Cost = $54,806.47

The Capitalized Cost is $54,806.47