Question

The yearly maintenance cost is 15,000 and 250,000 for repairment of road every 18 year. If...

The yearly maintenance cost is 15,000 and 250,000 for repairment of road every 18 year. If an annual interest rate of 3.5%, what is the cost for perpetual?

1.3M

1.75M

1.45M

1.33M
plz answer ASAP Only right answer Will be rated

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Homework Answers

Answer #1

Given Data:

Yearly maintenance cost = 15000

Repairment of roads every 18 years = 250000

Interest rate = 3.5%

Tenure = ∞ years

This a classic example of Assets with infinite life

Capitalized cost/Cost of Perpetual = First cost + (Disbursement/interest rate)

First cost is not mentioned therefore is 0.

Cost of Perpetual = [15000 + 250000(A/P,3.5%,18)]/0.035

Cost of Perpetual = (15000 + 250000(0.0758))/0.035

Cost of Perpetual = 970000 = 0.97M

The nearest answer is 1.3M, therefore can be considered as a correct answer.

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