We want to donate a marble birdbath to the city park as a memorial to cats. We a

Question

We want to donate a marble birdbath to the city park as a memorial to cats. We also want to set up a perpetual care fund to cover future expenses "forever." The initial cost of the bath is $5000. Routine annual operating costs are $200 per year, but every fifth year the cost will be $500 to cover major cleaning and maintenance as well as operation.
a) What is the capitalized cost of this project if the interest rate is 8%?
b) How much is the present worth of this project if it is to be demolished after 75 years? The final $500 payment in the 75th year will cover the year's operating cost and the site reclamation.

Explanation / Answer

Capitalised cost = 5000 + 200/r + 500/r' where r' is effective five year rate (1+r)^5 =1+r r' =0.469 hence Capitalised cost =8566.09

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.