8. First Cost = 155,000
Annual Maintenance Cost = 72,000
Salvage Value = 78,000
Life = 10 years
Interest Rate = 6%
Calculate Capitalized Cost.
Step 1 – Calculate the Annual Worth of the investment
AW = 155,000 (A/P, 6%, 10) + 72,000 – 78,000 (A/F, 6%, 10)
AW = 155,000 (0.13587) + 72,000 – 78,000 (0.07587) = 87,141.99 or 87,142
Step – 2 Calculate Capitalized Cost
CC = Annual Worth ÷ Interest rate
CC = 87,142 ÷ 0.10 = 871,420
Answer - 871,000 (nearest value given)
9. Initial Cost = 600,000
Annual Maintenance & Operating Cost = 120,000
Interest = 10%
Calculate Capitalized Cost
Capitalized Cost = Initial Cost + (Annual Maintenance & Operating Cost ÷ Interest Rate)
Capitalized Cost = 600,000 + (120,000 ÷ 0.10)
Capitalized Cost = 600,000 + 1,200,000
Capitalized Cost = 1,800,000
Answer – 1,800,000
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