1) An investor is considering the construction of a new marina on the Detroit river at a cost of $68m. M&O costs will average $80,000 per year for the first five years, and rise to $100,000 per year thereafter.
A major overhaul costing $12m will be required at the end of the 15th year. The overhaul will be repeated (at the same cost) every 10 years thereafter. What is the capitalized cost of the marina if the interest rate is 4% per year?
2) XBC Inc. is planning to buy a new car. Model A costs $22,000 and is expected to have a life of 4 years. Model B costs $35,000 but it is expected to last 6 years.
Model B provides a better warranty and it will save the company an average of $1,000 per year in covered costs. At the end of its life, either car can be replaced with a similar model at the same cost.
The salvage value is expected to be 10% of original cost for either model. Using annual worth analysis and an interest rate of 5% per year, determine the better buy.
Please show all the steps for obtaining the answers please.