As a city engineer, you seek the capitalized cost of perpetual service from a water storage tank. Due to the highly corrosive nature of your coastal environment, the tank (which costs $40,000) is maintained at an annual cost of $1000, and is replaced every 10 years. Whenever its service life ends, the tank is intended to be sold to a steel mill as metal scrap for $3000. Using 10% interest rate:
(a) Find the capitalized cost of the storage tank investment.
(b) Give two reasons why the formula you used in (a) is most appropriate for questions involving civil systems of this type.
(c) How much depreciation does this tank undergo in its service life?
(d) What is the average annual rate of depreciation? State any assumptions.