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SVEN [57.7K]
3 years ago
12

A dam is being built that will cost $500,000. The dam will cost $20,000 per year to operate and will require a maintenance expen

se of $30,000 every other year beginning two years from now. The dam is expected to last 30 years. If interest is 12%, calculate the capitalized cost.
Business
1 answer:
liubo4ka [24]3 years ago
4 0

Answer:

The capitalized cost will be "784,592".

Explanation:

The given values are:

Initial cost = $500,000

Annual operating cost = $20,000

Interest, i = 12% i.e., 0.12

Effective Two year interest rate, i₂ = (1.12)^2 - 1

                                                         = 0.2544

As we know,

Capitalized \ cost = Initial \ cost + \frac{Annual \ operating \ cost }{i}  + \frac{Bi-annual \ maintenance \ cost}{i_{2}}

Now on putting the estimated values in the above expression, we get

⇒                       =500,000+\frac{20,000 }{0.12} +\frac{30,000}{0.2544}

⇒                       = 500000 + 166667 + 117925

⇒                       = 784,592

So that the above is the right answer.

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