PANGASINAN STATE UNIVERSITY

College of Engineering and Architecture

Civil Engineering Department
Urdaneta City Campus

Name:
Year & Section:

ENGINEERING ECONOMICS
PROBLEM SET 2

CAPITALIZED COST

One of the most applications of perpetuity is in capitalized cost. The capitalized cost of
any property is the sum of the 1st cost and the present worth of all cost of replacement,
operation, and maintenance for a long time or forever.

FC= first cost

OM= operation and maintenance

RC= replacement cost

SV= salvage value

CASE #1

No replacement only maintenance and or operation every period.

CC= FC + Present worth of perpetual operation and or maintenance.

1. Determine the cost of a structure that requires an initial investment of P1,500,000 and an
annual maintenance of P150,000. Interest is 15%.

CASE #2

Replacement only, no maintenance and or operation cost.

CC= FC + Present cost of perpetual replacement

2. A new engine was installed by a textile plant at a cost of P300,000 and projected to
have a useful life of 15 years. At the end of its useful life, it is estimated to have a salvage
value of P30,000. Determine its CC if interest is 18% compounded annually.

CASE #3:

Replacement, maintenance, and or operation every period.

CC= FC + Present worth of cost of perpetual operation and or maintenance + present

worth of cost of perpetual replacement.

3. Determine the CC of a research laboratory which requires P5,000,000 for original

construction; P100,000 at the cost of every year for the first 6 years and then P120,000
each year hereafter for operating expenses and P500,000 every 5 years for replacement
of equipment with interest at 12% per annum.

Prepared by: RONNEL L. MORENO, CE Checked by: Rizalyn C. Ilumin, MSCE, MDM, MSME
Faculty, CE Department Chairperson, CE Department
PSU-Urdaneta PSU-Urdaneta
 PANGASINAN STATE UNIVERSITY
College of Engineering and Architecture
Civil Engineering Department
Urdaneta City Campus

Name:
Year & Section:

CAPITALIZED COST

4. What is the capitalized cost of a certain property that have a first cost of 16,000,000, an
annual maintenance cost of 62,000 and minor reconstruction cost of 80,000 every four
years at an interest of 7% per year.

5. A building has a total cost of 90,000,000 and life of 18 years. The building must be partially
renovated after its lifespan at a cost of 30,000,000. At 7%, find the capitalized cost of the
building.

6. Determine the capitalized cost of a permanent roadside historical marker that has a first
cost of 78,000 and a maintenance cost of 3,500 once every five years. Use an interest
rate of 9% per year.

Prepared by: RONNEL L. MORENO, CE Checked by: Rizalyn C. Ilumin, MSCE, MDM, MSME
Faculty, CE Department Chairperson, CE Department
PSU-Urdaneta PSU-Urdaneta