A delivery van costing $24,000 has an estimated lifetime of 12 years at which time it will cost $1200 to dispose of it.Annual maintenance costs are $900.If the interest rate is j₁ = 9%,what is the capitalized cost of the van? (Answer to the nearest dollar)

Question

Quizplus · Accepted Answer

To determine the capitalized cost, we need to calculate the present value of all future costs associated with the van. 
1. Annual maintenance costs of $900 for 12 years with a discount rate of 9% can be calculated as follows:
PV = 900 * [(1 - (1 + 0.09)^-12)/0.09] = $7,756.32
2. The disposal cost of $1200 at the end of 12th year has a present value of:
PV = 1200/[(1+0.09)^12] = $392.76
3. The initial cost of the van itself is $24,000. Therefore, the capitalized cost of the van would be:
PV of all future costs = PV of annual maintenance cost + PV of disposal cost + initial cost of the van
= 7756.32 + 392.76 + 24000
= $47,902.08
Hence, the best choice is C.

A Delivery Van Costing $24,000 Has an Estimated Lifetime of 12