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In: Economics

To maintain a bridge, Php 5,000 will be required at the end of 3years and...

To maintain a bridge, Php 5,000 will be required at the end of 3 years and annually thereafter. If money is worth 8%, determine the capitalized cost of all future maintenance.

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Expert Solution

Ans.
The capatalized cost is the present value of all the payments required. So,

PW = 0 + 0/(1+0.08) + 0/(1+0.08)^2 + 5000/(1+0.08)^3 + 5000/(1+0.08)^4 + 5000/(1+0.08)^5 + 5000/(1+0.08)^6 +.......infinity

Using the formula for infinite sum of a geometric progression, we get,

PW = 5000/[0.08*(1+0.08)^2] = Php 53583.6763

Thus, the capatalized cost of Maintainance is about Php 53583.68.

Rahul Sunny answered 2 years ago
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