<Type our name>
<Full address>
Keystone Building,
400 North Street,
Harrisburg PA17120.
Dear Engineer McCain.
RE: SURFACE MATERIAL REPORT
I am writing to report on the results of the assignment on the preferred surface material for road pavement in various sections. I calculated the most cost-effective material basing on the provided data. I believe that the intention of the assignment was to determine the material that would cost the least.
Using the capital cost method, I managed to establish the material with the least capitalized cost. The capitalized cost method matches the expenses and revenues for the time of use. It assumes that some assets last long and, as a result, would generate revenues for an extended time. Therefore, the costs are amortized over that period.
The results show that it would be cheaper to use type A material. The cost difference between the two materials is significant to choose type A over type B. The following details supports these propositions.
Using a 12% interest rate, type A material would cost $957,920. Type B material would cost $1,008,830. It follows that choosing type A over B would cost $50, 910 less. It is evident that the difference is economically significant i.e. it would have a positive impact on the profitability of the investments more than type B over time. Even though type A resurfacing time is ten years and type B fifteen, the result indicates that for the respective periods, A has less capitalized cost making it preferable. I look forward to continued cooperation. In the case of any concerns on the matter, kindly contact me. Thank you.
<Full name>
