Determine the capitalized cost for the renovation

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Reference no: EM132005661

Lincoln Park Zoo in Chicago is considering a renovation that will improve some physical facilities at a cost of $1,800,000. Every 5 years, major repairs and cleanup are required at a cost of $320,000. Additional maintenance, food, and animal care and replacement will cost $145,000 annually. The zoo has been in operation since 1868 and is expected to continue indenitely. MARR is 10%/year.

(a) Determine the capitalized cost for the renovation.

(b) Suppose that the zoo considers 10-year planning horizon on all new investments.

The zoo is open and free to its visitors, but it is expected to earn annual revenue of $430,000 from extra services, donations, and subsidies from the Chicago Park District. What is the anticipated B/C ratio of the renovation (note that the major repair and cleanup will occur twice in 10 years)? Do you recommend to renovate the facilities?

Reference no: EM132005661

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