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]

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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