A production facility is currently utilizing carbon steel tubing. The current process will require the injection...

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A production facility is currently utilizing carbon steel tubing. The current process will require the injection of chemicals to control tubing corrosion due to high temperatures, pressures, and corrosive chlorides in the transported product. It is proposed to replace the car- bon steel that cost $12 per foot with an installation cost of $125,000 last year, with a chrome stainless steel tubing that would cost $68 per foot today (time zero). 20,000 feet of tubing would be required and installation costs are estimated to total $500,000 (also at time zero). Annual cost savings in chemicals, labor, and chemical injection equip- ment are projected to be $550,000 in year one. The year one savings would escalate at an annually compounded rate of 7% per year beginning in year 2. For simplicity, use a 6-year evaluation life with a salvage value of zero at the end of year 6. Assume a 15% minimum ROR. Identify the two mutually exclusive service alternatives in time diagram format and evaluate each with a present worth cost analysis. Support your cost findings using incremental NPV and ROR analyses to determine if the installation of the chrome tubing is economically desirable. Assume the existing carbon steel tubing has no salvage value today. A production facility is currently utilizing carbon steel tubing. The current process will require the injection of chemicals to control tubing corrosion due to high temperatures, pressures, and corrosive chlorides in the transported product. It is proposed to replace the car- bon steel that cost $12 per foot with an installation cost of $125,000 last year, with a chrome stainless steel tubing that would cost $68 per foot today (time zero). 20,000 feet of tubing would be required and installation costs are estimated to total $500,000 (also at time zero). Annual cost savings in chemicals, labor, and chemical injection equip- ment are projected to be $550,000 in year one. The year one savings would escalate at an annually compounded rate of 7% per year beginning in year 2. For simplicity, use a 6-year evaluation life with a salvage value of zero at the end of year 6. Assume a 15% minimum ROR. Identify the two mutually exclusive service alternatives in time diagram format and evaluate each with a present worth cost analysis. Support your cost findings using incremental NPV and ROR analyses to determine if the installation of the chrome tubing is economically desirable. Assume the existing carbon steel tubing has no salvage value today.

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To analyze the economic feasibility of replacing the carbon steel tubing with chrome stainless steel tubing we will perform a present worth cost analy... View the full answer