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A perpetual annual cost of 5000 at 8 per cent has a capitalised cost of

  • A.40 000
  • B.400
  • C.5000
  • D.62 500

Answer: D

Correct answer: 62 500

Capitalised cost of a perpetual annual amount is that amount divided by the interest rate: \[ \frac{5000}{0.08} = 62\,500. \] Invested at eight per cent, 62 500 yields exactly 5000 a year for ever without touching the capital, which is what makes it the equivalent present sum.

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