A dam will have a first cost of P250,000,000, an annual maintenance cost of P1,250,000 and minor reconstruction costs of P518,546 every five years. At an interest rate of 0.09 per year, what is the capitalized cost of the dam in pesos?

A dam will have a first cost of P250,000,000, an annual maintenance cost of P1,250,000 and minor reconstruction costs of P518,546 every five years. At an interest rate of 0.09 per year, what is the capitalized cost of the dam in pesos?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

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