Question

An asphalt pavement costing PHP 100,000 which would last for 5 years with negligible repairs. At the end of 5 years, PHP...


An asphalt pavement costing PHP 100,000 which would last for 5 years with negligible repairs. At the end of 5 years, PHP 5,000 would be spent to remove the old surface before PHP 100,000 is spent again for new surface. A thick concrete pavement costing PHP 250,000 for minor repairs at the end of every years. Money is worth 8% compounded annually. Determine the capitalized cost for the asphalt pavement. and Find out the Capitalized cost for the asphalt pavement

Answer

Given that;

An asphalt pavement costing PHP 100,000 which would last for 5 years with negligible repairs.

At the end of 5 years, PHP 5,000 would be spent to remove the old surface before PHP 100,000 is spent again for new surface.

A thick concrete pavement costing PHP 250,000 for minor repairs at the end of every years.

Money is worth 8% compounded annually.

The PHP 100,000 first cost is already a present worth. 

The PHP 5,000 which occurs at the end of five years can be converted into an infinite A value using the A/F factor for one life cycle.  Dividing the A values by i and adding to the PHP 100,000 PW will yield the capitalized cost, CC.

CC = -100,000 - 250,000/0.08 - 5,000 (A/F, 8%, 5) / 0.08
                   = -5,000,000 - 312,5000 - 5,000 (0.1705)/0.08
                   = -8,135,656.25

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