A newly constructed bridge costs $10,000,000. The same bridge is estimated to need renovation every 10 years at a cost of $1,000,000. Annual repairs and maintenance are estimated to be $100,000 per year.(a) If the interest rate is 5%, determine the capitalized-equivalent cost of the bridge.{b) Suppose that the bridge must be renovated every 15 years, not every10 years. What is the capitalized cost of the bridge if the interest rate is thesame as in (a)?(c) Repeat (a) and (b) with an interest rate of 10%. What can you say about the effect of interest on the results?
A newly constructed bridge costs $10,000,000. The same bridge is estimated to need renovation every 10 years at a cost of $1,000,000. Annual repairs and maintenance are estimated to be $100,000 per year.(a) If the interest rate is 5%, determine the capitalized-equivalent cost of the bridge.{b) Suppose that the bridge must be renovated every 15 years, not every10 years. What is the capitalized cost of the bridge if the interest rate is thesame as in (a)?(c) Repeat (a) and (b) with an interest rate of 10%. What can you say about the effect of interest on the results?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A newly constructed bridge costs $10,000,000. The same bridge is estimated to need renovation every 10 years at a cost of $1,000,000. Annual repairs and maintenance are estimated to be $100,000 per year.
(a) If the interest rate is 5%, determine the capitalized-equivalent cost of the bridge.
{b) Suppose that the bridge must be renovated every 15 years, not every
10 years. What is the capitalized cost of the bridge if the interest rate is the
same as in (a)?
(c) Repeat (a) and (b) with an interest rate of 10%. What can you say about the effect of interest on the results?
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