Respuesta :
If the interest rate is 10%/year, then the total capitalized cost is $2,708,610.03
The $210,000 which occurs every four years can be converted to an Annual value using the A/F factor. Dividing the resulting Annual values by 'r' will yield the capitalized cost
A/F Factor is calculated as below
A/F Factor at 10% for 8 years = [tex]\frac{r}{ (1+r)^n -1}[/tex]
= [tex]\frac{0.10}{1.1^8 - 1}[/tex]
= 0.08744401
Capitalized Cost = $1,920,000 + (57000 / 0.10) + (250,000 × 0.08744401) / 0.10 = $2,708,610.03
- On a company's balance sheet, a capitalized cost is an item that is added to the cost base of a fixed asset. When constructing or acquiring fixed assets, capitalized expenditures are incurred. Capitalized expenses are not written off in the period they are incurred, but rather are recognized over time through depreciation or amortization.
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