A large refinery and petrochemical complex is planning to manufacture caustic soda, which will use 10,000 gallons of feed water per day. Two types off eed-water storage installation are being considered to serve over 40 years of useful life:Option 1: Build a 20,000-gallon tank on a tower. The cost of installing thetank and tower is estimated to be $164,000. The salvage value is estimatedto be negligible.Option 2: Place a 20,000-gallon tank of equal capacity on a hill that is150 yards away from the refinery. The cost of installing the tank on the hill,including the extra length of service lines, is estimated to be $120,000 withnegligible salvage value. Because of its hill location, an additional investment of $12,000 in pumping equipment is required. The pumping equipment is expected to have a service life of 20 years with a salvage value of $1,000 at the end of that time. The annual operating and maintenance cost (including any income-tax effects) for the pumping operation is estimated at $1,000.If the firm's MARR is known to be 12%, which option is better, calculated on the basis of the present-worth criterion? At an interest rate of 12%, compare the net present worth of each option over eight years.
A large refinery and petrochemical complex is planning to manufacture caustic soda, which will use 10,000 gallons of feed water per day. Two types off eed-water storage installation are being considered to serve over 40 years of useful life:
Option 1: Build a 20,000-gallon tank on a tower. The cost of installing the
tank and tower is estimated to be $164,000. The salvage value is estimated
to be negligible.
Option 2: Place a 20,000-gallon tank of equal capacity on a hill that is
150 yards away from the refinery. The cost of installing the tank on the hill,
including the extra length of service lines, is estimated to be $120,000 with
negligible salvage value. Because of its hill location, an additional investment of $12,000 in pumping equipment is required. The pumping equipment is expected to have a service life of 20 years with a salvage value of $1,000 at the end of that time. The annual operating and maintenance cost (including any income-tax effects) for the pumping operation is estimated at $1,000.
If the firm's MARR is known to be 12%, which option is better, calculated on the basis of the present-worth criterion? At an interest rate of 12%, compare the net present worth of each option over eight years.
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