Question

Can you answer :

the capitalized cost of $10,000 in year 0, $5000 per year in years 1 through 5, and $2000 per year thereafter forever ,At an interest rate of 12% per year is closest to:
    A.  
$38,954

    B.  
$178,369

    C.  
$35,163

    D.  
$29,652

Answer 1

We have the following information

First Cost ($)	10,000
Annual Cost for first 5 years ($)	5,000
Annual Cost after 5 years ($)	2,000
Interest Rate	12% or 0.12

Capitalized Cost = 10,000 + 5,000(P/A, 12%, 5) + 2,000(A/F, 12%, 6)(P/A, 12%, n=infinite)

Capitalized Cost = 10,000 + 5,000[((1+0.12)⁵ – 1)/0.12(1+0.12)⁵] + {2,000 × [0.12/((1 + 0.12)⁶ – 1)] × (1/0.12)}

Capitalized Cost = 10,000 + (5,000 × 3.605) + (2,000 × 0.1232 × 8.33)

Capitalized Cost = 10,000 + 18,023.88 + (246.45 × 8.33)

Capitalized Cost = 28,023.88 + 2,052.93

Capitalized Cost = $30,076.80