Final answer:
The capitalized cost of the government monument can be calculated by adding the first cost, present value of remodeling costs, and present value of annual operating and maintenance costs. The present values are calculated using a discount rate of 4% per year. The total capitalized cost can be obtained by summing up all these values.
Step-by-step explanation:
The capitalized cost is the total cost of an asset over its lifetime, taking into account all initial costs, remodeling costs, and annual operating and maintenance costs. To calculate the capitalized cost of the government monument, we need to consider the first cost, remodeling costs, and annual operating and maintenance costs.
First, let's calculate the present value of the remodeling costs and the annual operating and maintenance costs. We'll use a discount rate of 4% per year to account for the time value of money.
- The present value of the one-time remodeling cost at year 7 is given by: $300,000 / (1 + 0.04)7 = $214,480.40
- The present value of the major remodeling costs at the end of every 12 years is given by: $500,000 / (1 + 0.04)12 + $500,000 / (1 + 0.04)24 + $500,000 / (1 + 0.04)36 + ...
- The present value of the annual operating and maintenance costs for the first 7 years is given by: $15,000 / (1 + 0.04)1 + $15,000 / (1 + 0.04)2 + $15,000 / (1 + 0.04)3 + ... + $15,000 / (1 + 0.04)7
- The present value of the annual operating and maintenance costs after year 7 is given by: $15,000 / (1 + 0.04)8 + $15,000 / (1 + 0.04)9 + $15,000 / (1 + 0.04)10 + ...
Next, we'll add up all these present values to get the total capitalized cost:
Capitalized cost = First cost + Present value of remodeling costs + Present value of annual operating and maintenance costs