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1
1. Determine the capitalized cost of a small public market if the structure has a first cost of P20M, a life of 20 years and a salvage value of P750,000. The annual operating cost is P150,000. Taxes to be paid is P70,000 annually. Use an interest rate of 7.5%.
2. The maintenance cost of equipment is P15,000 per year and its capitalized cost at 6% interest is P1.8M. IF the equipment has a salvage value of P30,000 and has to be renewed at cost after 10 years, find its original cost.
3. A company uses a type of truck that costs P2M, with a life of three years and a final salvage value of P320,000. How much could the company afford to pay for another type of truck for the same purpose, whose life is four years with a final salvage value of P400,000, if money is worth 4%?
4. Determine the capitalized cost of a research laboratory that requires P5M for original construction; P100,000 at the end of every year for the first 6 years and then P120,000 each year thereafter for operating expenses, and P500,000 every 5 years for replacement of equipment with interest at 12% per annum?
Expert Solution
| The initial cost, P = P 20,000,000 (Cash Outflow), |
| Annual operating and maintenance cost, A = P 150,000 (Cash Outflow), |
| Salvage value, F = P 750,000 (Cash Inflow). |
| Use Full life , N = 20 years |
| Capitalization Cost (PW) = - 20,000,000 – 150,000(P/A, i, n) + 750,000(P/F, i, n) |
| PW = - 20,000,000 – 150,000(P/A, 7.5%, 20) + 750,000(P/F, 7.5%,20) |
(P/A, 7.5%, 20) = 7.0556
(P/F, 7.5%,20) = 0.2354
| PW = - 20,000,000 – 150,000 x 7.0556 + 750,000 x 0.2354 |
PW = - 20,881,787.55
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