Question

A beautiful bridge is being built over the river that runs through a major city in your state. The cost of the bridge is estimated at $600 million. Annual costs of the bridge will be $200,000, and the bridge is estimated to last a very long time. If accountants in city hall use 3% as the interest rate for analysis, what is the annualized cost of the bridge project

Answer 1

$18.20 million

Step-by-step explanation:

Net present value = Initial cost + (Annual cost/3%)

Net present value = $600 million + $200,000/3%

Net present value = $600 million + $6.67 million

Net present value = $606.67 million

Annualized cost = Net present value * 3%

Annualized cost = $606.67 million * 3%

Annualized cost = $18.20 million

So, the annualized cost of the bridge project is $18.20 million.