15. Two options of feed-water storage installation are being considered to serve over 20 yearsof useful life:Option 1: Build a 20,000-gallon tank on a tower. The cost of installing the tank and toweris estimated to be $170,000. The annual operating and maintenance cost after taxadjustment is estimated to be $2,000. The salvage value is estimated to be negligible.Option 2: Place a 20,000-gallon tank of equal capacity on a hill near the refinery. The costof installing the tank on the hill, including the extra length of service lines, is estimated tobe $120,000 with negligible salvage value. The annual operating and maintenance cost ofthe water tank is estimated to be $1,500 after tax adjustment. Because of the location, anadditional investment of 13,000 in pumping equipment is required. The pumpingequipment is expected to have a service life of 10 years with a salvage value of $2,000 atthe end of that time. The annual operating and maintenance cost (including any incometaxeffects) for the pumping operation is estimated at $1,000.If the firm's MARR is known to be 12%, what is the net present worth of option 1? (Usenegative sign if needed)16. In the previous question, what is the net present worth of option 2? (Use negative sign ifneeded)17. For questions 15 and 16, which option would youchoose?

Answered: 15. Two options of feed-water storage…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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15. Two options of feed-water storage installation are being considered to serve over 20 years
of useful life:
Option 1: Build a 20,000-gallon tank on a tower. The cost of installing the tank and tower
is estimated to be $170,000. The annual operating and maintenance cost after tax
adjustment is estimated to be $2,000. The salvage value is estimated to be negligible.
Option 2: Place a 20,000-gallon tank of equal capacity on a hill near the refinery. The cost
of installing the tank on the hill, including the extra length of service lines, is estimated to
be $120,000 with negligible salvage value. The annual operating and maintenance cost of
the water tank is estimated to be $1,500 after tax adjustment. Because of the location, an
additional investment of 13,000 in pumping equipment is required. The pumping
equipment is expected to have a service life of 10 years with a salvage value of $2,000 at
the end of that time. The annual operating and maintenance cost (including any incometax
effects) for the pumping operation is estimated at $1,000.
If the firm's MARR is known to be 12%, what is the net present worth of option 1? (Use
negative sign if needed)
16. In the previous question, what is the net present worth of option 2? (Use negative sign if
needed)
17. For questions 15 and 16, which option would you
choose?

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The present worth of an investment or a project refers to its current value in accordance with its value in the future based on a certain minimum acceptable rate of return. The net present worth refers to the excess of the present worth of the total benefits over the present worth of the total costs.

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