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?

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?

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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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

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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