Answer:
The capitalized cost will be "784,592".
Explanation:
The given values are:
Initial cost = $500,000
Annual operating cost = $20,000
Interest, i = 12% i.e., 0.12
Effective Two year interest rate, i₂ = [tex](1.12)^2 - 1[/tex]
= [tex]0.2544[/tex]
As we know,
[tex]Capitalized \ cost = Initial \ cost + \frac{Annual \ operating \ cost }{i} + \frac{Bi-annual \ maintenance \ cost}{i_{2}}[/tex]
Now on putting the estimated values in the above expression, we get
⇒ [tex]=500,000+\frac{20,000 }{0.12} +\frac{30,000}{0.2544}[/tex]
⇒ [tex]= 500000 + 166667 + 117925[/tex]
⇒ [tex]= 784,592[/tex]
So that the above is the right answer.
