The first cost of a bridge is$6 million. The maintenance cost is$70,000 per year with major...

Question:

The first cost of a bridge is$6 million. The maintenance cost is$70,000 per year with major repairs required every 5 years at a cost of $100,000. If the bridge is expected to last forever, what is the equivalent annual worth at an interest rate of 10% per year?

a. 606,351

b. 686,380

c. 605,380

d. 676,100

EAW:

Equivalent annual worth is defined as an accounting tool used in the cost-benefit analysis to calculate the annual cost of maintenance and operating of a fixed asset over its operating life. It can be calculated by dividing the present value of the annuity factor from net cash flow.

Answer and Explanation:

Option b is the correct answer.

Given information:

  • First cost is (FC)$6 million.
  • Maintenance cost (MC) is $70,000 per year.
  • Repairing cost (RC) is...

See full answer below.

Become a Study.com member to unlock this answer! Create your account

View this answer

Learn more about this topic:

Net Present Value: Evaluating Estimates
Net Present Value: Evaluating Estimates

from Financial Accounting: Help and Review

Chapter 4 / Lesson 1
1.1K

Related to this Question

Explore our homework questions and answers library