Street lighting fixtures and their sodium vapor bulbs for a two-block area of a
ID: 2547631 • Letter: S
Question
Street lighting fixtures and their sodium vapor bulbs for a two-block area of a large city need to be installed at a first cost (investment cost) of $110,000. Annual maintenance expenses are expected to be $6,650 for the first 15 years and S9,500 for each year hereafter. The ghting will be needed for an indefinitely on g pe d of time. With an interest rate of 10% per year, what is the capitalized cos of his pro ect? Click the icon to view the interest and annuity table for discrete compounding when the MARR is 10% per year. Choose the closest answer below O A. The capitalized cost of the project is $132,742. O B. The capitalized cost of the project is $232,838. O C. The capitalized cost of the project is $183,323 D. The capitalized cost of the project is $160.580.Explanation / Answer
Capitalized cost of project will be equal to present value of all annual outflows over the life of the project and initial investment cost
Initial Investment cost = $110,000
Present Value of Annual maintenance expenses for Ist 15 yrs = Annual Maintenance Expenses*PVAF(15yrs,10%)
= $6,650*7.60607951 = $50,580.43
Present Value of Annual maintenance exp. after 15 yrs = (Annual Maintenance Exp./10%)*PVF(15yrs,10%)
= ($9,500/10%)*0.23939205 = $95,000*0.23939205
= $22,742.24
Capitalized cost of Project = $110,000+$50,580.43+$22,742.24 = $183,322.67 or $183,323
Therefore the correct answer is C) $183,323.