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The capitalised cost of a permanent asset is the

  • A.annual cost of the asset expressed as a perpetuity
  • B.original first cost with no allowance for upkeep
  • C.present sum whose interest will meet its costs for ever
  • D.sum of all its costs over an assumed hundred-year life

Answer: C

Correct answer: present sum whose interest will meet its costs for ever

Capitalised cost is the amount which, invested at the given rate, would generate interest exactly sufficient to meet the asset’s costs indefinitely, so it is \( A/i \) plus the first cost. It is the natural way to compare permanent works, since a finite study period would arbitrarily favour whichever alternative it happened to end on.

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