Q2: The designer of the penstock for a small hydroelectric cogeneration station has the optionof using steel pipe, which costs $150,000 installed and requires $4000 yearly for painting andleak-checking maintenance, or DSR4.3 (heavy-duty plastic) pipe, which costs $170,000installed and requires $1150 yearly for leak-checking maintenance. Both options have anexpected life of 30 years. If the interest rate is 8%, which choice has the lower presentequivalent cost, and how much lower is it?

Present equivalent cost is the annual cost of acquiring and maintaining an asset determined by…

Answered: expected life of 30 years. If the…

expected life of 30 years. If the interest rate is 8%, which choice has the lower present equivalent cost, and how much lower is it?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Q2: The designer of the penstock for a small hydroelectric cogeneration station has the option
of using steel pipe, which costs $150,000 installed and requires $4000 yearly for painting and
leak-checking maintenance, or DSR4.3 (heavy-duty plastic) pipe, which costs $170,000
installed and requires $1150 yearly for leak-checking maintenance. Both options have an
expected life of 30 years. If the interest rate is 8%, which choice has the lower present
equivalent cost, and how much lower is it?

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