Dannylyn is comparing two bridges A and B on the basis of capitalized cost at 5% interest. Bridge A has an estimated life of 25 years, initial cost of P55M, renewal cost of P35M, annual maintenance of P0.5M, repairs every five years amounting to P2M and salvage value of P5M. Bridge B has an estimated life of 50 years, initial cost of P75M, renewal cost of P75M, annual maintenance of P0.1M, repairs every five years amounting to P1M and salvage value of P10M.The initial cost can paid out of available funds. All other expenses will be defrayed by sinking funds. a. How much savings is realized
Dannylyn is comparing two bridges A and B on the basis of capitalized cost at 5% interest. Bridge A has an estimated life of 25 years, initial cost of P55M, renewal cost of P35M, annual maintenance of P0.5M, repairs every five years amounting to P2M and salvage value of P5M. Bridge B has an estimated life of 50 years, initial cost of P75M, renewal cost of P75M, annual maintenance of P0.1M, repairs every five years amounting to P1M and salvage value of P10M.The initial cost can paid out of available funds. All other expenses will be defrayed by sinking funds. a. How much savings is realized
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Dannylyn is comparing two bridges A and B on the basis of capitalized cost at 5% interest. Bridge A has an estimated life of 25 years, initial cost of P55M, renewal cost of P35M, annual maintenance of P0.5M, repairs every five years amounting to P2M and salvage value of P5M. Bridge B has an estimated life of 50 years, initial cost of P75M, renewal cost of P75M, annual maintenance of P0.1M, repairs every five years amounting to P1M and salvage value of P10M.The initial cost can paid out of available funds. All other expenses will be defrayed by sinking funds.
a. How much savings is realized by choosing the more economical of the two bridges?
b. What is the capitalized cost of Bridge A?
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