Question

cost $150,000 each. If the trust fund earns 8% inter- est, what is the developer's capitalized cost? 5.54 Use capitalized cost to determine which type of road surface is preferred on a particular section of highway. Use 12% interest rate. as onc (co 20 cap Initial cost Annual maintenance Periodic resurfacing Resurfacing interval lini is $32 $500,000 35,000 350,000 10 years $700,000 25,000 450,000 15 years will estin сара italiz 5-55 A new bridge project is being evaluated at i = 5%. Recommend an alternative based on the canitalized shou

Answer 1

Solution:

For Road-A:

NPV = -$500,000 - 35000 (P/A,12%,10) - 350,000 (P/F ,12%,10)

NPV = -$500,000 - (35000 * 5.6502) - (350,000 * 0.3220)

NPV = -$500,000 - 197,757.81 - 112,690.63

NPV = -$810,448.44

EAC = NPV / (P/A,12%,10) = -$810,448.44 / 5.6502 = -$143,437.12

For Road-B:

NPV = -$700,000 - 25,000 (P/A,12%,15) - 450,000 (P/F ,12%,15)

NPV = -$700,000 - (25,000 * 6.8109) - (450,000 * 0.1827)

NPV = -$700,000 - $170,271.61 - $82,213.32

NPV = -$952,484.93

EAC = NPV / (P/A, 12%,15) = -$952,484.93 / 6.8109 = -$139,847.15

Road-B would be preferred because compared to Road-A it's annual cost is less thus indicating that Road B will be cheaper in comparison to Road A

As per policy we have to answer first question