To decrease the costs of operating a lock in a large river, a new system ofoperation is proposed. The system will cost $650,000 to design and build. It isestimated that it will have to be reworked every 10 years at a cost of $100,000. In addition, an expenditure of $50,000 will have to be made at the end of the fifth year for a new type of gear that will not be available until then. Annual operating costs are expected to be $30,000 for the first 15 years and $35,000 a year thereafter. Compute the capitalized cost of perpetual service at i = 8%.
To decrease the costs of operating a lock in a large river, a new system ofoperation is proposed. The system will cost $650,000 to design and build. It isestimated that it will have to be reworked every 10 years at a cost of $100,000. In addition, an expenditure of $50,000 will have to be made at the end of the fifth year for a new type of gear that will not be available until then. Annual operating costs are expected to be $30,000 for the first 15 years and $35,000 a year thereafter. Compute the capitalized cost of perpetual service at i = 8%.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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To decrease the costs of operating a lock in a large river, a new system of
operation is proposed. The system will cost $650,000 to design and build. It is
estimated that it will have to be reworked every 10 years at a cost of $100,000. In addition, an expenditure of $50,000 will have to be made at the end of the fifth year for a new type of gear that will not be available until then. Annual operating costs are expected to be $30,000 for the first 15 years and $35,000 a year thereafter. Compute the capitalized cost of perpetual service at i = 8%.
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