An investor is considering the construction of a new marina on the Detroit river at a cost of $68m. M&O costs will average $80,000 per year for the first five years, and rise to $100,000 per year thereafter. A major overhaul costing $12m will be required at the end of the 15th year. The overhaul will be repeated (at the same cost) every 10 years thereafter. What is the capitalized cost of the marina if the interest rate is 4% per year?
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An investor is considering the construction of a new marina on the Detroit river at a cost of $68m.
M&O costs will average $80,000 per year for the first five years, and rise to $100,000 per year thereafter.
A major overhaul costing $12m will be required at the end of the 15th year.
The overhaul will be repeated (at the same cost) every 10 years thereafter
.the capitalized cost of the marina if the interest rate is 4% per year
=
Capitalized Cost = PW of Cost for an infinite time period.
First compute the Equivalent Annual Cost of the maintenance.
EAC = 80,000 (F/A, 4%, 5)
356145.79
A major overhaul costing $12m will be required at the end of the 15th year.
sO PV = $ 12 ( 4%, 15)
=6.6
The overhaul will be repeated (at the same cost) every 10 years thereafter
so pv for future cost is 5.63
PV for the maintainance cost after 5 year
=100000( PV 4% 5)
=82192
For n = ∞, P = A/I
Capitalized Cost = 356145 + 660,000+68000000 + 563000+ ( 82192/0.04)
=$ 77010945
