An oil company has installed an offshore production facility for $10 million in year 1. The annual maintenance cost of the facility is $60,000 per year for the 2nd year, increasing by $10,000 per year for the next 9 years. In the 12th year, a major overhaul is conducted at a cost of $500,000. The overhaul helped in keeping maintenance costs fixed at $150,000 per year for the remaining 10 years. At the end of 22 years, the facility is sold for a sum of $2 million. If the market interest rate is 8% per year, calculate the present value at year 0 of all the costs over the 22-year period.

Answer rating: 100% (QA)

ANSWER installation cost in year 1 10000000 annual maintenance cost from year 2 60000 increase in an... View the full answer