USFIMSE EGN 3615 MIDTERM SU 18 Problem 5 20 points Use capi

USFIMSE EGN 3615 MID-TERM \' SU 18) Problem 5 (20 points). Use capitalized cost to determine which type of road surface is preferred on a particular section of highway. Use 12% interest rate. Initial cost s the cost of building the road surface. Annual maintenance occurs every year.rg alternative A, resurfacing needs to be carried out every 10 years and for alternative 5, every 15 years. Initial Cost Annual maintenance 35k Periodic resurfacing 350k Resurfacing interval 10 years 15 years S500k $700k 25k

Solution

A

B

Initial Cost

500,000

700,000

Annual Maintenance

35,000

25,000

Periodic resurfacing

350,000 at every 10 years

450,000 at every 15 years

Using Capitalized cost when rate of interest is 12%

Capitalized Cost = First Cost + Present Worth of annual cost continue up to infinite period

CC = Initial cost + A/i

Capitalized Cost of A

CC = 500,000 + [35,000 + 350,000 (A/F, 12%, 10)] /0.12

CC = 500,000 + [35,000 + 350,000 (0.0570)] /0.12

CC = 500,000 + [35,000 + 19,950] /0.12

CC = 500,000 + [54,950] /0.12

CC = 500,000 + 457,917

CC = 957,917

Capitalized Cost of A

CC = 700,000 + [25,000 + 450,000 (A/F, 12%, 15)] /0.12

CC = 700,000 + [25,000 + 450,000 (0.0268)] /0.12

CC = 700,000 + [25,000 + 12,060] /0.12

CC = 700,000 + [37,060] /0.12

CC = 700,000 + 308,833

CC = 1,008,833

On the basis of the above calculations, road surface A is to be selected because of less capitalized cost.

	A	B
Initial Cost	500,000	700,000
Annual Maintenance	35,000	25,000
Periodic resurfacing	350,000 at every 10 years	450,000 at every 15 years