Capitalized Costs and Uniform Arithmetic

1. Determine the capitalized cost at 15% interest of a structure with an initial cost of
$200,000 and annual operating and maintenance costs of $40,000.

P = $200,000 + $40,000 (P/A,15%,n = infinity)

= $200,000 + $40,000 (1 / 0.15 )

P = $200,000 + $266,667 = $466,667

2. The capitalized cost of a present sum of $60,000 and annual amounts of $10,000
per year for an infinite time at 10% per year is closest to:

CC = -60,000 – 10,000 / 0.10

= $160,000

3. A water supply dam will cost $7 million to build and it will have erosion control
costs of $800,000 every 5 years forever. At an interest rate of 10% per year, the
capitalized cost of the dam is closest to:

CC = -7,000,000 – 800,000 / 0.10

= -7,000,000 – 800,000 (0.16380) / 0.10
= -$8,310,400

4. A wealthy alumnus of a major university wants to start a permanent endownment

in his name. He wants to be able to give scholarships to 5 engineering students
each year beginning 10 years from now. If he wants the scholarships to be in the
amount of $6,000 for each student, how must he donate now if the account earns
interest at a rate of 8% per year?

CC = -5 (6000) / 0.08
= -$375,000 (0.5002)
= -$187,575
5. A donor to a cancer research foundation wants to provide a donation now for
outstanding research awards in the amount of $100,000 in year 1, $125,000 in
year 2, and amounts increasing by $25,000 each year thru year 10. Thereafter,
the amount will remain the same as that in year 10. If the fund earns interest at
10% per year, how much must the donation be?

CC = -100,000 – 25,000 – 325,000 /10

= -100,000 – 25,000 – 3,250,000 (0.3855)
= -$2,439,618

6. At 6%, find the capitalized cost of a bridge whose cost is P250M and life is 20
years, if the bridge must be partially rebuilt at a cost of P100M at the end of each
20 years.

7. Determine the capitalized cost of an expenditure of $200,000 at time 0, $25,000 in

years 2 through 5, and $40,000 per year from year 6 on. Use an interest rate of
12% per year.

CC = -200,000 – 25,000(P/A,12%,4)(P/F,12%,1) – [40,000/0.12](P/F,12%,5)

= -200,000 – 25,000(3.0373)(0.8929) – [40,000/0.12])(0.5674)
= $-456,933

8. Compute the values of P in fig.

9. Compute the values of P and F in fig.

10. Compute the values of P and F in fig.