Scribd
Upload
154 views9 pages

Capitalized Cost and Gradient

The document discusses capitalized cost, which is the sum of the first cost of a property plus the present worth of all future costs of replacement, operation, and maintenance over time. It provides three cases: maintenance only, replacement only, and both replacement and maintenance. The document also discusses amortization, uniform arithmetic and geometric gradient series, and provides sample problems calculating capitalized cost and amortization schedules.

Uploaded by

Novy Arevalo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
154 views9 pages

Capitalized Cost and Gradient

The document discusses capitalized cost, which is the sum of the first cost of a property plus the present worth of all future costs of replacement, operation, and maintenance over time. It provides three cases: maintenance only, replacement only, and both replacement and maintenance. The document also discusses amortization, uniform arithmetic and geometric gradient series, and provides sample problems calculating capitalized cost and amortization schedules.

Uploaded by

Novy Arevalo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 9

Annuities

Engineering Economics
Capitalized Cost
Capitalized Cost of any property is the sum of the first cost
and the present worth of all costs of replacement,
operation and maintenance for a long time or forever.
Case 1: No replacement, only maintenance and or
operation every period.

Capitalized Cost = First Cost + Present Worth of Perpetual Operation and


Maintenance

2
Capitalized Cost
Case 2: Replacement Only, no maintenance and or
operation.
Capitalized Cost = First Cost + Present Worth of Perpetual Replacement

Case 3: Replacement, Maintenance and or operation every


period.
Capitalized Cost = First Cost + Present Worth of Perpetual Operation and
Maintenance + Present Worth of Perpetual Replacement
3
Amortization
Amortization is any method of repaying a debt, the
principal and interest included, usually by a series of equal
payment at equal interval of time.

4
Uniform Arithmetic Gradient
An arithmetic gradient series is a cash flow series that
either increases or decreases by a constant amount each
period. The amount of change is called the gradient.

𝑃 𝐺=𝐺 ( 𝑃
𝐺
,𝑖 % ,𝑛 )
5
Geometric Gradient Series
A geometric gradient series is a cash flow series that either
increases or decreases by a constant percentage each
period. The uniform change is called the rate of change.

[ ( ) ]
𝑛
1+𝑔
1−
1+𝑖
𝑃 𝐺= 𝐴1
𝑖−𝑔
𝑃 𝐺= 𝐴1 ( 𝑃
𝐴 )
, 𝑔 % ,𝑖 % , 𝑛

6
Sample Problems
1. Determine the capitalized cost of a structure that requires an initial investment of
P1,500,000 and an annual maintenance of P150,000. Interest is 15%. Ans. P2,500,000
2. A new engine was installed by a textile plant at a cost of P300,000 and projected to
have a useful life of 15 years. At the end of its useful life, it is estimated to have a
salvage value of P30,000. Determine its capitalized cost if interest is 18% compounded
annually. Ans. P326,604
3. Determine the capitalized cost of a research laboratory which requires P5,000,000 for
original construction; P100,000 at the end of every year for the first 6 years and then
P120,000 each year thereafter for operating expenses, and P500,000 every 5 years for
replacement of equipment with interest at 12% per annum. Ans. P6,753,650
4. A debt of P5000 with interest at 12% compounded semiannually is to be amortized by
equal semiannual payments over the next 3 years, the first due in 6 months. Find the
semiannual payment and construct amortization schedule? Ans. P1016.82

7
Sample Problems
5. A debt of P10,000 with interest at the rate of 20% compounded semiannually is
to be amortized by 5 equal payments at the end of each 6 months, the first
payment is to be made after 3 years. Find the semiannual payment and
construct an amortization schedule. Ans. P4248.50
6. A loan was to be amortized by a group of four end-of-year payments forming an
ascending arithmetic progression. The initial payment was to be P5000 and the
difference between successive payments was to be P400. But the loan was
renegotiated to provide for the payment of equal rather than uniformly varying
sums. If the interest rate of the loan was 15%, what was the annual payment?
Ans. P5530.51
7. Find the equivalent annual payment of the following obligations at 20% interest
(EOY 1 – P8000; EOY 2 – P7000; EOY – P6000; EOY – P 5000? Ans.
P6725.77
8
Sample Problems
8. A coal-fi red power plant has upgraded an emission control valve. The modification costs
only $8000 and is expected to last 6 years with a $200 salvage value. The maintenance
cost is expected to be high at $1700 the first year, increasing by 11% per year thereafter.
Determine the equivalent present worth of the modification and maintenance cost at 8%
per year. Ans. $-17999

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy