A university pumps its water from wells located on campus. The falling water table has caused pumping costs to increase, the quantity of water available to decrease, and the quality of water to deteriorate. A public water company now has a large water main that runs within a few hundred yards of the university’s pumping station. The university has decided to build a pipeline connecting to the company’s water main and to purchase water for the school. Two alternative types of pipe are being considered to supply the needs for a 60-year period. The relevant data is shown below:

Using a 60-year study period, recommend a pipe alternative based on equivalent uniform annual cost. Since the university is tax exempt, it uses a MARR of 6 percent/year. Assume a zero net terminal salvage value for the pipe and the pumping equipment, and assume that renewal costs during the 60-year period will be the same as the initial costs.

Pipe A Initial Investment in Pipe $120,000 Pipe B $80,000 Estimated Pipe Life 60 years 30 years Initial Investment in $15,000 $20,000 Pumping Equipment Estimated Life of 20 years 20 years Pumping Equipment Annual Maintenance $3,000 $4,000 and Energy Costs