ACME Construction Co. is planning to build a painted tunnel in the Utah desert p

Question

ACME Construction Co. is planning to build a painted tunnel in the Utah desert per request of the Roadrunner. The Roadrunner has specified that the tunnel must be always available and must last forever. What is the capitalized cost for the painted tunnel project? Assume i=12%. In the table below, you can find all the associated costs for the project.

Project Cost Year Initial Investment $260,000 Year 0 One Time Reinvestment $80,000 Year 10 Annual Operations & Maintainance Costs $12,000 Per year, for n = infinity Major Maintenance Costs $100,000 First one on year 14, then every 14 years

Explanation / Answer

Year Costs Costs Future value Future value 0 260000 260000 260000*(1.12^14) 1270649.194 1 12000 12000 12000*(1.12^13) 52361.91734 2 12000 12000 12000*(1.12^12) 46751.71191 3 12000 12000 12000*(1.12^11) 41742.59992 4 12000 12000 12000*(1.12^10) 37270.1785 5 12000 12000 12000*(1.12^9) 33276.94509 6 12000 12000 12000*(1.12^8) 29711.55812 7 12000 12000 12000*(1.12^7) 26528.17689 8 12000 12000 12000*(1.12^6) 23685.87222 9 12000 12000 12000*(1.12^5) 21148.1002 10 80000+12000 92000 92000*(1.12^4) 144763.7811 11 12000 12000 12000*(1.12^3) 16859.136 12 12000 12000 12000*(1.12^5) 21148.1002 13 12000 12000 12000*(1.12^5) 21148.1002 14 100000+12000 112000 112000*(1.12^0) 112000 1899045.372

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