Question

The cost of extending a certain road at Yellowstone National Park is $1.7 million. Resurfacing and other maintenance are expected to cost $350,000 every 3 years. What is the capitalized cost of the road at an interest rate of 6% per year?

Answer 1

Answer:

Capitalized Cost -5,589,977.80

Explanation:

1,700,000 investment + PV of resurfacing and maintenance

Because this works ocurs on a 3 years basis, first we need the uniform annual amount, of the surfacing using the interst rate of 6%

$C * \frac{(1+r)^{time} -1}{rate} = FV$

$C * \frac{(1+0.06)^{3} -1}{0.06} = 170,000$

53,398.66817

Then we calculate the present value of the uniform annual amount given the fact that is a perpetual cost

53,398.66817 /0.06 = 889,977.8029

Capitalized cost

1,700,000 + 889,977.80 = 5,589,977.80