Beaver, a city in the United States, is attempting to attract a professional soccer team. Beaver is planning to build a new stadium that will cost $340 million. The annual upkeep is expected to amount to $850,000. The turf will have to be replaced every 11 years at a cost of $980,000. Painting every 6 years will cost $82,000. If the city expects to maintain the facility indefinitely, what is the estimated capitalized cost at i = 8% per year?The estimated capitalized cost is $.......

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Asked Nov 8, 2019
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Beaver, a city in the United States, is attempting to attract a professional soccer team. Beaver is planning to build a new stadium that will cost $340 million. The annual upkeep is expected to amount to $850,000. The turf will have to be replaced every 11 years at a cost of $980,000. Painting every 6 years will cost $82,000. If the city expects to maintain the facility indefinitely, what is the estimated capitalized cost at i = 8% per year?

The estimated capitalized cost is $.......

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Expert Answer

Step 1

As per the question, except the initial cost, all the other costs will continue for longer periods. We can determine the present values using formulas as shown below:

Step 2

Present value of intial cost is $340 million or $340000000

Step 3
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Present value of annual upkeep = (Annual upkeep amount) i Here, i is the interest rate. Given that the interest rate is 8% per year Present value of annual upkeep-850000-8%=10625000

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