A new solid waste treatment plant is to be constructed in Washington County. The initial installation will cost $35 million (M). After 10 years, minor repair and renovation (R&R) will occur at a cost of $12M will be required; after 20 years, a major R&R costing $18M will be required. The investment pattern will repeat every 20 years. Each year during the 20-year period, operating and maintenance (O&M) costs will occur. The first year, O&M costs will total $3M. Thereafter, O&M costs will increase at a compound rate of 4% per year. Based on a 4% MARR, what is the capitalized cost for the solid waste treatment plant?
A new solid waste treatment plant is to be constructed in Washington County. The initial installation will cost $35 million (M). After 10 years, minor repair and renovation (R&R) will occur at a cost of $12M will be required; after 20 years, a major R&R costing $18M will be required. The investment pattern will repeat every 20 years. Each year during the 20-year period, operating and maintenance (O&M) costs will occur. The first year, O&M costs will total $3M. Thereafter, O&M costs will increase at a compound rate of 4% per year. Based on a 4% MARR, what is the capitalized cost for the solid waste treatment plant?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 19P
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