The capitalized cost (CC) is the total cost of an asset, including the initial cost (IC) and the present value of the maintenance costs (MC) over its useful life, discounted at the interest rate (R). This metric is used to evaluate the total cost of ownership of an asset.
The formula to calculate the capitalized cost (CC) is:
\[ CC = IC + MC \left(\frac{1}{R/100}\right) \]
Where:
Let's say the initial cost (IC) is $10,000, the maintenance cost (MC) is $500 per year, and the interest rate (R) is 5%. Using the formula:
\[ CC = 10000 + 500 \left(\frac{1}{5/100}\right) = 10000 + 500 \times 20 = 10000 + 10000 = 20000 \text{ dollars} \]
So, the capitalized cost (CC) is $20,000.
