Question

It is estimated that the annual maintenance cost of a statue erected in front of a public building in a state capital would be $1,000. Assuming an interest rate of 4% compounded annually, determine the capitalized cost for maintaining the statue.

Answer 1

$24,630.54

Step-by-step explanation:

Calculation to determine the capitalized cost for maintaining the statue

First step is to calculate the Effective interest rate

Effective interest rate = (1+.04/4) ^4 -1

Effective interest rate= 0.04060

Last step is to calculat the capitalized cost for maintaining the statue using this formula

Capitalized cost =Annual maintenance cost /Effective interest rate

Let plug in the formula

Capitalized cost = ($1,000/0.04060)

Capitalized cost = $24,630.54

Therefore the capitalized cost for maintaining the statue will be $24,630.54