A city planning commission is analyzing a project to determine its capitalized cost. The project is a water park that has an initial cost of $11,000,000.00 and operating and mainte- nance costs of $100,000.00 in the first year increasing by $10,000.00 a year for five years, and then the operating and maintenance costs return to $100,000.00 per year for the infinite life. The water park will generate profits of $1,300,000.00 per year. The interest rate is 13%. Determine the capitalized cost of the water park using net present worth analysis.

A city planning commission is analyzing a project to determine its capitalized cost. The project is a water park that has an initial cost of $11,000,000.00 and operating and mainte- nance costs of $100,000.00 in the first year increasing by $10,000.00 a year for five years, and then the operating and maintenance costs return to $100,000.00 per year for the infinite life. The water park will generate profits of $1,300,000.00 per year. The interest rate is 13%. Determine the capitalized cost of the water park using net present worth analysis.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 3E

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