Question

Problem 3 - (11 pts) The US Army Corps of Engineers is considering a safety modification to the Keystone Dam. The modification will have a first cost of $5,000,000 with annual maintenance costs of $25,000 and minor reconstruction costs of $100,000 every five years. If the Corps uses an interest rate of 8%/yr/yr, what is the capitalized cost of the dam?

Answer 1

ferest cost = 5,000,000 Annual Marentenance cost = 25,000 Miñor Reconstruction cost = 100,000 ели Берг Interest Rate = 8% What is the capitalized cost ? Stepl. - Convert the minor reconstruction cost at every 5 years crito yearly cost A: FCAF, 8%,5) = 100,000 (0.17046 ) = 17046 Step 2: Calculate Total Annual cost Annual Moentenance cost- 25,000 Annual Reconstruction cost = 17,046 Total Annual cost = 42 046 Step 3 : Calculate Capitalized cost Cc: Initial cost & Andreal cost Interest Rate 42,046 = 5,000,000 + 0.08 = 5,000,000 + 525,575 25,525, 575 Capitalized cost of Dam = $5,525,575 T ALLLLLLLL