An oil company is planning to install a new pipeline to connect storage tanks to a proccessing plant 1500m away . Both 120 mm and 180 mm pipes are being considered.
120 mm pipe 180 mm pipe
Initial cost $2500 $3500
Service life 12 years 12 years
Salvage value $ 300 $ 400
Annual maint. $ 300 $ 200
Pump cost/hr. $1.40 $1.00
Pump operation 600 hr./yr. 600 hr./yr
The company will use an annual interest rate of 10%. Annual maintenance and pumping costs may be considered to be paid in their entireties at the end of the years in which their costs are incurred.
What is the approximate present worth of the 120 mm pipe over the first 12 years of operation?
A. 9200
B. 10,200
C. 11,900
D. 12,100
What is the present worth of the 180 mm pipe over the first 12 years of operation if operating costs increased by %0.75 ( to 1.75 per hour) beginning in year 7?
A. 8790
B. 9010
C. 9380
D. 9930