Question

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

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.