Long range planning is made for a road maintenance project. Design A has an initial cost of 5,000,000 (equipment) and requires major upgrades every five years at a cost of 1, 250,000 and yearly cleaning costs of 700,000.
Design B requires 4,000,000 in initial cost. Yearly cost of 600,000 and major upgrades every ten years of 2,000,000.
Interest rate for this problem is 6% per year. What are the capitalized costs and which is better?