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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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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