An oil company is planning to install a new pipeline to connect storage tanks to a processing plant 5000 feet away. Both 5-inch and 7-inch pipes are being considered. For this analysis, the company will use an effective 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. Both scenarios assume the pipe will be salvaged at the end of the service life. 5-inch pipe 7-inch pipe Initial Cost $2,500 $3,500 Service Life 12 years 12 years Salvage Value $300 $400 Annual Maintenance $300 $200 Pump Cost per Hour $1.40 $1.00 Pump Operation 600 hours/year 600 hours/year What is the present value (P) of the 7 inch pipe? Round to nearest whole number and do not include the dollar sign. [Answer1]
An oil company is planning to install a new pipeline to connect storage tanks to a processing plant 5000 feet away. Both 5-inch and 7-inch pipes are being considered. For this analysis, the company will use an effective 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. Both scenarios assume the pipe will be salvaged at the end of the service life. 5-inch pipe 7-inch pipe Initial Cost $2,500 $3,500 Service Life 12 years 12 years Salvage Value $300 $400 Annual Maintenance $300 $200 Pump Cost per Hour $1.40 $1.00 Pump Operation 600 hours/year 600 hours/year What is the present value (P) of the 7 inch pipe? Round to nearest whole number and do not include the dollar sign. [Answer1]
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![An oil company is planning to install a new pipeline to connect storage
tanks to a processing plant 5000 feet away. Both 5-inch and 7-inch pipes
are being considered. For this analysis, the company will use an effective
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. Both scenarios assume the pipe will be salvaged
at the end of the service life.
5-inch pipe
7-inch pipe
Initial Cost
$2,500
$3,500
Service Life
12 years
years
Salvage Value
$300
$400
Annual Maintenance
$300
$200
Pump Cost per Hour
$1.40
$1.00
Pump Operation
600 hours/year
600 hours/year
What is the present value (P) of the 7 inch pipe? Round to nearest
whole number and do not include the dollar sign. [Answer1]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F483ab184-d68f-4433-bd83-9b26037d7cd1%2F06005bad-fa9d-4f79-876c-f5eefca320c9%2F80nord_processed.jpeg&w=3840&q=75)
Transcribed Image Text:An oil company is planning to install a new pipeline to connect storage
tanks to a processing plant 5000 feet away. Both 5-inch and 7-inch pipes
are being considered. For this analysis, the company will use an effective
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. Both scenarios assume the pipe will be salvaged
at the end of the service life.
5-inch pipe
7-inch pipe
Initial Cost
$2,500
$3,500
Service Life
12 years
years
Salvage Value
$300
$400
Annual Maintenance
$300
$200
Pump Cost per Hour
$1.40
$1.00
Pump Operation
600 hours/year
600 hours/year
What is the present value (P) of the 7 inch pipe? Round to nearest
whole number and do not include the dollar sign. [Answer1]
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