What is the capitalized cost for the water treatment plant

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Reference no: EM131875347

A new water treatment plant is to be installed by the Beaver Water District. The initial installation costs $80 million (M). Minor replacement and renovation is required after 10 years at a cost of $12M; major replacement and renovation is required 20 years after the initial installation at a cost of $25M. The 20-year cycle of minor and major replacements and renovations repeats indefinitely. Annual O&M cost the first year is $5M; thereafter, O&M cost increases at a rate of $0.25M per year. Annual O&M cost the first year after the minor replacement and renovation is $7.5M; thereafter, for the balance of the 20-year cycle, O&M cost increases at a rate of 5% per year. Based on a 4% time value of money, what is the capitalized cost for the water treatment plant?

Reference no: EM131875347

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