Final answer:
Capitalized Cost (CC) is the present worth of a project with a long life or planning horizon, commonly used in Business and Finance. It is calculated by discounting future cash flows to their present value. The concept helps determine if the present value of future benefits justifies the initial investment cost.
Step-by-step explanation:
Capitalized Cost (CC) refers to the present worth of a project that has a very long life or when the planning horizon is considered very long or infinite. It is a concept commonly used in the field of Business and Finance.
The Capitalized Cost is calculated by discounting the future cash flows of the project to their present value. By applying a discount rate to these cash flows, we can ascertain the present worth or value of the project.
For example, let's say a company is considering investing in a new manufacturing plant. The cost of building the plant today would be considered the capitalized cost. However, the benefits and cash flows generated by the plant over its projected lifespan of 40 years would be discounted to their present value using a discount rate. This allows the company to determine if the present value of the future benefits justifies the initial investment cost.