8. A newly constructed bridge cost $130 million and 50 year life span. It is est

Question

8. A newly constructed bridge cost $130 million and 50 year life span. It is estimated that the bridge will need a major maintenance overhaul every 10 years at a cost of $3,000,000. In addition at 6 years (then every 10 years), non-destruction testing to determine bridge wear will take place at a cost of $100,000. Annual repairs and maintenance to fill potholes, replace lighting systems and paint are estimated to be $110,000 per year. At an interest rate of 5%, determine the capitalized cost of the bridge. How much should be deposited into a single account if it is desired for routine maintenance is to be provided as a capitalized infinite project?

Explanation / Answer

Technically, the capitalised cost of the bridge should be equal to the construction cost only. However, in this case, the cost of the bridge will be worked out as under : $ Original Cost 13000000 Maintenance Overhaul 300000 p.a. Non-destruction testing 16667 p.a. Annual Maintenance Costs 110000 Interest Cost @ 5% 650000 p.a. Total Capitalised Cost 14076667 For routine maintenance to be provided as a capitalised infinite project, the amount to be deposited into a single account will be $ 300,000 + $ 16,667 + $ 110,000 = 426667 $

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