Question

The capitalized cost was computed to be P2 million. The structure includes some additional expenses of P100,000 at the beginning of the year for the next 15 years, a renewal cost of P200,000 would occur in which the expected life of the structure is 5 years. Another cost to consider starting at the end of the tenth year for 20 years is expected amounting to P10,000. If the interest rate is 9% per year, determine the perpetual maintenance of this structure.

Answer 1

Given Intial Cost of the structure = P 20,00,000

Perpectual maintenance of the structure = 1,00,000 + 1,00,000*PVAF(14yrs,9%) + 2,00,000*PVF(15yrs,9%) + 2,00,000*PVF(20yrs,9%) + 2,00,000*PVF(25yrs,9%) + 10,000*PVAF(10-20yrs,9%)

=1,00,000 + 1,00,000*7.7862 + 2,00,000*0.2745 + 2,00,000*0.1784 + 2,00,000*0.1160 + 10000*(10.274-6.4177)

=1,00,000+7,78,620+54,900+35,680+23,200+38,563

=10,30,963

Present value of maintenance without initial cost is P10,30,963

Total cost of the structure is P30,30,963

Assumptions:-

• Life of the structure along with the renewals is taken as 30years since another cost has been given for next 20 years from the end of tenth year.
• Assumed that the Renewal costs are being incurred from the end of 15years till the end of 30years for 3 times i.e. 15-20, 20-25, 25-30 respectively