5.47 Petrobras, the Brazilian energy company, has iden- tified two alternatives to provide potable water to offshore platforms-purchase and operate the equipment, or contract long term with Manal and Associates, an international oilfield service corpo- ration. For the estimates shown, use capitalized cost analysis at i = 6% per year to determine (a) the better economic choice for Petrobras, and (b) the maximum annual M&O cost that will cause Manal and Associates to succeed in winning the contract. Alternative Purchase First cost, $ -300,000 M&O, $ per year -10,000, year 1 +2% increase each year thereafter Salvage value, $ 70,000 Expected use, years 8 Contract -850,000 -10,000 40+
5.47 Petrobras, the Brazilian energy company, has iden- tified two alternatives to provide potable water to offshore platforms-purchase and operate the equipment, or contract long term with Manal and Associates, an international oilfield service corpo- ration. For the estimates shown, use capitalized cost analysis at i = 6% per year to determine (a) the better economic choice for Petrobras, and (b) the maximum annual M&O cost that will cause Manal and Associates to succeed in winning the contract. Alternative Purchase First cost, $ -300,000 M&O, $ per year -10,000, year 1 +2% increase each year thereafter Salvage value, $ 70,000 Expected use, years 8 Contract -850,000 -10,000 40+
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:5.47 Petrobras, the Brazilian energy company, has iden-
tified two alternatives to provide potable water to
offshore platforms-purchase and operate the
equipment, or contract long term with Manal and
Associates, an international oilfield service corpo-
ration. For the estimates shown, use capitalized
cost analysis at i = 6% per year to determine (a) the
better economic choice for Petrobras, and (b) the
maximum annual M&O cost that will cause Manal
and Associates to succeed in winning the contract.
Alternative
Purchase
First cost, $
-300,000
M&O, $ per year
-10,000, year 1
+2% increase each
year thereafter
Salvage value, $
70,000
Expected use, years
8
Contract
-850,000
-10,000
40+
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