It would cost $1.7 million to pave a multi-use trail today. In addition, minor repairs and...

It would cost $1.7 million to pave a multi-use trail today. In addition, minor repairs and up-keep will cost $100,000 per year starting next year and continuing indefinitely. Every 10 years the trail will also need a major re-surfacing at a cost of $850,000 in addition to the annual $100,000 up-keep cost. These costs will also continue indefinitely.

a. Draw a cash flow diagram for Year 0 through Year 20 showing all costs in each year.

b. Calculate the annualized cost (EUAC) of the resurfacing and minor maintenance over the first 10 years of the project’s life if i = 12%. Ignore the initial paving cost.

c. Based on the EUAC from part (a) above, calculate the capitalized cost (P) of the project over its infinite life including the initial paving cost. Remember that the initial cost is in present dollars and is part of the capitalized cost of the project.

Expert Solution

Rahul Sunny answered 2 years ago

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