# Project A has a construction cost of $200,200 and an annual maintenance cost of $1.5 Million....

## Question:

Project A has a construction cost of $200,200 and an annual maintenance cost of $1.5 Million.

Project B has a construction cost of $275,000 and an annual maintenance cost of $1.2 Million.

If both projects are expected to last forever and the interest rate is 12 %, what is the capitalized cost of the project that should be selected?

## Capitalized Cost

Some government projects are massive undertakings like bridges or reservoirs and are expected to last forever. The typical way to evaluate a project like this is to calculate the capitalized cost. All cash flows are converted into present values and summed to give the total cost of the project including perpetual maintenance.

## Answer and Explanation: 1

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View this answer**The answer is the capitalized cost of Project B is the lowest at $10,275,000. Project B is selected.**

To calculate the capitalized cost, determine...

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Chapter 24 / Lesson 15Calculating the present value of an investment tells how much money needs to be saved now in order to reach a desired, future amount. Explore the definition of and formula for the present value of an investment, and see examples.

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