The city of Oak Ridge is considering the construction of a three kilometer (km) greenway walking trail. It will cost $1,000 per km to build the trail and $320 per km per year to maintain it over its 23-year life. If the city's MARR is 10% per year, what is the equivalent uniform annual cost of this project? Assume the trail has no residual value at the end of 23 years.
Net Present Value
Net present value is the most important concept of finance. It is used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. The difference between the present value of cash inflow and cash outflow is termed as net present value (NPV). It is used for capital budgeting and investment planning. It is also used to compare similar investment alternatives.
Investment Decision
The term investment refers to allocating money with the intention of getting positive returns in the future period. For example, an asset would be acquired with the motive of generating income by selling the asset when there is a price increase.
Factors That Complicate Capital Investment Analysis
Capital investment analysis is a way of the budgeting process that companies and the government use to evaluate the profitability of the investment that has been done for the long term. This can include the evaluation of fixed assets such as machinery, equipment, etc.
Capital Budgeting
Capital budgeting is a decision-making process whereby long-term investments is evaluated and selected based on whether such investment is worth pursuing in future or not. It plays an important role in financial decision-making as it impacts the profitability of the business in the long term. The benefits of capital budgeting may be in the form of increased revenue or reduction in cost. The capital budgeting decisions include replacing or rebuilding of the fixed assets, addition of an asset. These long-term investment decisions involve a large number of funds and are irreversible because the market for the second-hand asset may be difficult to find and will have an effect over long-time spam. A right decision can yield favorable returns on the other hand a wrong decision may have an effect on the sustainability of the firm. Capital budgeting helps businesses to understand risks that are involved in undertaking capital investment. It also enables them to choose the option which generates the best return by applying the various capital budgeting techniques.
The city of Oak Ridge is considering the construction of a three kilometer (km) greenway walking trail. It will cost $1,000 per km to build the trail and $320 per km per year to maintain it over its 23-year life. If the city's MARR is 10% per year, what is the equivalent uniform annual cost of this project? Assume the trail has no residual value at the end of 23 years.
![Single Payment
Compound
Amount
Factor
To Find F
Present
Worth Factor
To Find P
Given P
Given F
Given A
Given A
Discrete Compounding; /= 10%
Uniform Series
Sinking
Present
Worth Factor
Fund
Factor
Compound
Amount
Factor
To Find F
To Find P
To Find A
Capital
Recovery
Factor
To Find A
Given P
Given F
N
FIP
PIF
FIA
PIA
AIF
AIP
1
1.1000
0.9091
1.0000
0.9091
1.0000
1.1000
2
1.2100
0.8264
2.1000
1.7355
0.4762
0.5762
3
1.3310
0.7513
3.3100
2.4869
0.3021
0.4021
4
1.4641
0.6830
4.6410
3.1699
0.2155
0.3155
5
1.6105
0.6209
6.1051
3.7908
0.1638
0.2638
6
1.7716
0.5645
7.7156
4.3553
0.1296
0.2296
7
1.9487
0.5132
9.4872
4.8684
0.1054
0.2054
8
2.1436
0.4665
11.4359
5.3349
0.0874
0.1874
9
2.3579
0.4241
13.5795
5.7590
0.0736
0.1736
10
2.5937
0.3855
15.9374
6.1446
0.0627
0.1627
11
2.8531
0.3505
18.5312
6.4951
0.0540
0.1540
12
3.1384
0.3186
21.3843
6.8137
0.0468
0.1468
13
3.4523
0.2897
24.5227
7.1034
0.0408
0.1408
14
3.7975
0.2633
27.9750
7.3667
0.0357
0.1357
15
4.1772
0.2394
31.7725
7.6061
0.0315
0.1315
16
4.5950
0.2176
35.9497
7.8237
0.0278
0.1278
17
5.0545
0.1978
40.5447
8.0216
0.0247
0.1247
18
5.5599
0.1799
45.5992
8.2014
0.0219
0.1219
19
6.1159
0.1635
51.1591
8.3649
0.0195
0.1195
20
6.7275
0.1486
57.2750
8.5136
0.0175
0.1175
21
7.4002
0.1351
64.0025
8.6487
0.0156
0.1156
22
8.1403
0.1228
71.4027
8.7715
0.0140
0.1140
23
8.9543
0.1117
79.5430
8.8832
0.0126
0.1126
24
9.8497
0.1015
88.4973
8.9847
0.0113
0.1113
25
10.8347
0.0923
98.3471
9.0770
0.0102
0.1102
30
17.4494
0.0573
164.4940
9.4269
0.0061
0.1061
35
28.1024
0.0356
271.0244
9.6442
0.0037
0.1037
40
45.2593
0.0221
442.5926
9.7791
0.0023
0.1023
45
72.8905
0.0137
718.9048
9.8628
0.0014
0.1014
50
117.3909
0.0085
1163.9085
9.9148
0.0009
0.1009](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F92dd192b-2b85-4e23-91c3-a8e23aec13bb%2Ff8481436-7cb5-41f7-821f-6db5c901fb8b%2Fh30qyrm_processed.png&w=3840&q=75)
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