Please type the answer don’t hand write it Capitalized cost is defined as the pr
ID: 1170368 • Letter: P
Question
Please type the answer don’t hand write it Capitalized cost is defined as the present worth of infinite expenditures to construct, maintain and renew all alternatives. This method is usually used in comparisons involving very long term considerations. On a capitalized cost basis, the income or expenditures are calculated as though they continue in perpetuity or, in other words, forever. The capitalized basis of evaluation consists of finding a single sum in the present whose return at a given rate of interest will be equivalent to expenditures repeated in perpetuity. Example A railroad bridge must be replaced every 30 years àt a cost of $100,000. It costs $8,000lyear to maintain the bridge. What is the maximum cost of a permanent embankment to replace the bridge to make the replacement economically worthwhile? The embankment will still require maintenance of $3,500/year. Assume interest at 5% compounded annually.Explanation / Answer
AW of replacement cost = 100000*0.05/(1.05^30-1) = $ 1,505.14 (Assumed that the first cost will be at t0) Capitalised cost of AW of replacement cost = 1505.14/0.05 = $ 30,102.87 Capitalised cost of maintenance of the rail road bridge = 8000/0.05 = $ 1,60,000.00 Less: Capitalized cost of maintenance of the embankment =3500/0.05 = $ 70,000.00 Maximum cost of the embankment $ 1,20,102.87