Pricing
54/3335–8FE Reference Handbook 10.4 · Engineering Economics · Capitalized cost
1. Simple Interest2. Single-Payment Compound Amount (F/P)3. Single-Payment Present Worth (P/F)4. Uniform-Series Compound Amount (F/A)5. Sinking-Fund Factor (A/F)6. Capital-Recovery Factor (A/P)7. Uniform-Series Present Worth (P/A)8. Effective Interest Rate9. Arithmetic Gradient Present Worth (P/G)10. Net Present Worth11. Benefit–Cost Ratio12. Straight-Line Depreciation13. Geometric Gradient Present Worth14. Capitalized Cost (Perpetual PW)15. Payback Period16. Break-Even Quantity17. Equivalent Uniform Annual Worth18. Internal Rate of Return vs MARR19. MACRS Depreciation20. Declining-Balance Depreciation21. Inflation and Real Interest22. Expected Value of Alternatives

Handbook formula

Capitalized Cost (Perpetual PW)

Capitalized cost is the present worth of a project that lasts forever (or is replaced identically forever). A uniform annual cost A in perpetuity has PW = A/i. Finite-life assets are converted by repeating the AW forever: CC = AW/i.

Capitalized cost (PW of infinite horizon)
Equivalent uniform annual cost
Interest rate per year

Step-by-step solved example

A park needs $50,000 now plus $4,000 every year forever. i = 8%. Find CC.

P12345678An
Perpetual A capitalized as A/i.

  1. 1. Perpetuity

    PW of annual 4000 = 4000/0.08 = $50,000.

  2. 2. Add initial

    CC = 50,000 + 50,000 = $100,000.

Answer: CC = $100,000

10 practice questions

0/10 correct

1.PW of $1,000/yr forever at 5% is

2.Capitalized cost is used when n is

3.If AW = $2,400 and i = 6%, CC =

4.Doubling i (same A) makes CC

5.A finite-life machine with AW = $8,000 at 10% has CC

6.As n→∞, (P/A,i,n) approaches

7.Endowment needed to withdraw $5,000/yr forever at 4% is

8.Compared with a 20-year PW at the same i, CC is

9.i must be expressed as

10.First cost P plus perpetual annual O&M A has CC