The cost of paving a new multi-use trail is $1.7 million. Minor repairs and up-keep will cost $100,000 per year. Every 10 years the trail will need a major re-surfacing at a cost of $850,000. These costs will continue indefinitely.
a. Calculate the annualized cost (EUAC) of the resurfacing and minor maintenance over the first 10 years of the project’s life if i = 12%. Ignore the initial paving cost.
b. Based on the EUAC from part (a) above, calculate the capitalized cost (P) of the project over its infinite life including the initial paving cost. Remember that the initial cost is in present dollars and is part of the capitalized cost of the project.