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?
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.
- First cost is (FC)$6 million.
- Maintenance cost (MC) is $70,000 per year.
- Repairing cost (RC) is...
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from Financial Accounting: Help and ReviewChapter 4 / Lesson 1