An oil company is planning to install a new pipeline to connect storage tanks to a processing plant 1500m away. The connection will be needed for the foreseeable future. Both 80mm and 120mm pipes are being considered. 80 mm pipe 120mm pipe Initial cost $1500 $2500 Service life 12 yrs 12 yrs Salvage value $200 $300 Annual maintenance $400 $300 Pump cost/hour $2.50 $1.40 Pump operation 600 hours/yr 600 hours/yr For this analysis, the company will use an annual interest rate of 8%. Annual maintenance and pumping costs may be considered to be paid in their entireties at the end of the years in which their costs are incurred. Disregarding the the initial and replacement pipe costs, what is the capitalized cost($) of the maintenance and pumping costs for the 80mm pipe?
An oil company is planning to install a new pipeline to connect storage tanks to a processing plant 1500m away. The connection will be needed for the foreseeable future. Both 80mm and 120mm pipes are being considered. 80 mm pipe 120mm pipe Initial cost $1500 $2500 Service life 12 yrs 12 yrs Salvage value $200 $300 Annual maintenance $400 $300 Pump cost/hour $2.50 $1.40 Pump operation 600 hours/yr 600 hours/yr For this analysis, the company will use an annual interest rate of 8%. Annual maintenance and pumping costs may be considered to be paid in their entireties at the end of the years in which their costs are incurred. Disregarding the the initial and replacement pipe costs, what is the capitalized cost($) of the maintenance and pumping costs for the 80mm pipe?
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 1500m away. The connection will be needed for the foreseeable future. Both 80mm and 120mm pipes are being considered.
| 80 mm pipe | 120mm pipe | |
|---|---|---|
| Initial cost | $1500 | $2500 |
| Service life | 12 yrs | 12 yrs |
| Salvage value | $200 | $300 |
| Annual maintenance | $400 | $300 |
| Pump cost/hour | $2.50 | $1.40 |
| Pump operation | 600 hours/yr | 600 hours/yr |
For this analysis, the company will use an annual interest rate of 8%. Annual maintenance and pumping costs may be considered to be paid in their entireties at the end of the years in which their costs are incurred.
Disregarding the the initial and replacement pipe costs, what is the capitalized cost($) of the maintenance and pumping costs for the 80mm pipe?
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