A new municipal power plant is being built in Highfill, AR. The initial installa

Question

A new municipal power plant is being built in Highfill, AR. The initial installation will cost $25 million. Experience shows that major repair and renovation will have to occur every 5 years (beginning at year 5) at a cost of $7.5 million. Annual operating and maintenance costs are $2 million per year, indefinitely. Based on a 5% time value of money, what will be the capitalized cost for indefinite operation of the power plant?

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Explanation / Answer

Answer : P V = A/r

= 7500000/5%

Vaptalized cost = 15,00,00,000

Repair & maintenace cost & operation cost do not capitalize.

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