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Two incinerators are being considered by a waste management company. Design A has an initial cost of $2,825,000, has annual operating and maintenance costs of $950,000, and requires overhauls every 5 years at a cost of $1,325,000. Design B is more sophisticated, including computer controls; it has an initial cost of $5,750,000, has annual operating and maintenance costs of $650,000, and requires overhauls every 10 years at a cost of $2,750,000. Click here to access the TVM Factor Table Calculator

Using a 9.0 %/year interest rate, determine the capitalized cost for each design. Design A: $ Design B: $ Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is ±400.

Recommend which design should be chosen:

Design A

Design B

Answer 1