Question

A city plans to upgrade its storm water management infrastructure by installing new pipes. The installation costs 2.1 million dollars and the annual maintenance cost is $28,000. Every 10 years, the system needs to be fully examined which requires a fixed management and material cost of $ 20,000 and a variable labor cost at the rate of $25/hr. 8 full time (working 8 hours per day) workers will be employed for 40 days for this task. If the infrastructure has a life time of 120 years and the city's interest rate is 8%

What is the capitalized worth of the project (in millions)? Please note that the value could be negative.

Answer 1

Answer:	Calculation of capitalised worth:
			Present value
	Particulars	Amount	Calculation	Amount
	Installation costs	2,100,000.00	-	2,100,000.00
	Annual maintenance cost	28,000.00	28,000 / 0.08	350,000.00
	Fixed management cost every 10 years	20,000.00	20,000 * A/F(8%,10)
			20,000 * 0.06903	1,380.60
	Variable labour cost every 10 years	8,000.00	8,000 * A/F(8%,10)
			8,000 * 0.06903	552.24
	Capitalised worth	equals		(2,451,932.84)
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