sufficent moneyrnctor has agreed to construct an electric po

sufficent moneyrnctor has agreed to construct an electric power plant and to deposit sufficient money in a perpetual trust renovation is to take lahe plant every 15 years at a cost of $200,000. The first renovation is to take place fifteen years from now. The plan $500,000 to con fund to pay a $10,000/year operating cost and to t itself will initially cost annually what is his car the trust fund earns 10% interest per year (compounded renovations, and to pay the annual operating costs forever A) $606,000 B) $663,000 C) $2,100,000 D) $2,600,000 s capitalized cost to construct the plant, to make the future periodic

Solution

A= operating cost/year = $10000

Renovation cost every 15 years= $200000

Initial cost= $500000

Interest rate = 10%=0.10

Capitalized cost is the needed amount at present so it is equal to= initial cost+operating cost+renovation cost

Capitalized cost P0= 500000+(10000/0.10)+{200000(A/F,10%,15)0.10}

=500000+100000+{200000(0.0315)/0.10}

=$663000