You are hired as a consultant for an oil company that is planning to redo an...
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You are hired as a consultant for an oil company that is planning to redo an existing pipeline. The company would like you to compare 2 alternatives. The first is to renovate the existing line and the second is to put in a new line. An interest rate of 8% compounded quarterly is assumed and the annual maintenance and pumping costs are considered to be paid at the end of the period in which their cost occurred. a) Compare the alternatives using net present worth analysis NPW. b) Which alternative would you recommend to the oil company and why? Initial cost Service Life SV Quarterly Maintenance Pump cost/hour Pump Operation Renovate $6M 25 yrs $0 $15,000 $2.50 New Pipeline $15M 50 yrs $500,000 $8,000 $0.75 1752 hrs/qrt You are hired as a consultant for an oil company that is planning to redo an existing pipeline. The company would like you to compare 2 alternatives. The first is to renovate the existing line and the second is to put in a new line. An interest rate of 8% compounded quarterly is assumed and the annual maintenance and pumping costs are considered to be paid at the end of the period in which their cost occurred. a) Compare the alternatives using net present worth analysis NPW. b) Which alternative would you recommend to the oil company and why? Initial cost Service Life SV Quarterly Maintenance Pump cost/hour Pump Operation Renovate $6M 25 yrs $0 $15,000 $2.50 New Pipeline $15M 50 yrs $500,000 $8,000 $0.75 1752 hrs/qrt
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To compare the two alternatives renovate and new pipeline using Net Present Worth NPW analysis we need to calculate the NPW for each alternative and t... View the full answer
Related Book For
Intermediate Financial Management
ISBN: 978-1111530266
11th edition
Authors: Eugene F. Brigham, Phillip R. Daves
Posted Date:
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