An 80-cm pipeline can be built for $150,000. The annual operating and maintenance cost is estimated at $30,000. An alternative 50-cm line can be built for $120,000. It\'s operating and maintenance cost is estimated at $35,000 per year. Either line is expected to serve for 25 years with 10% salvage. Compare the two pipelines on an annual cost and present worth basis assuming a 15% interest rate. Ignore the differences in pipe diameter. Solution equivalize equipment sizes :: 400cm :: 5 of 80cm == 8 of 50 cm.. => salvage is same.. 80-cm pipelin :: 150*5 = $750,000 building 50-cm pipelin :: 120*8 = $960,000 building maintainance per year :: 80-cm :: $150,000 50-cm :: $280,000 interest rate :: 15% => 80-cm :: $22,500 50-cm :: $42,000 So 50-cm pipeline is costlier...

1. An 80-cm pipeline can be built for $150,000. The annual
operating and maintenance cost is estimated at $30,000. An
alternative 50-cm line can be built for $120,000. It's operating
and maintenance cost is estimated at $35,000 per year. Either line
is expected to serve for 25 years with 10% salvage. Compare the two
pipelines on an annual cost and present worth basis assuming a 15%
interest rate. Ignore the differences in pipe diameter.
Solution
equivalize equipment sizes ::
400cm :: 5 of 80cm == 8 of 50 cm..
=> salvage is same..
80-cm pipelin :: 150*5 = $750,000 building
50-cm pipelin :: 120*8 = $960,000 building
maintainance per year ::
80-cm :: $150,000
50-cm :: $280,000
interest rate :: 15%
=>
80-cm :: $22,500
50-cm :: $42,000
So 50-cm pipeline is costlier..