An oil and gas company considers five sizes of pipe for a new pipeline. The costs for each size are provided below. Cash flow item Initial investment ($) Annual operating & maintenance cost (AOC) ($) Salvage value ($) Annual income ($) Lifetime, years 140 3200 600 1000 1000 10 160 4000 950 1250 1500 10 Pipe size, mm a) Payback period b) Rate of return (ROR) c) Discounted profit to investment ratio (DPI) d) Annual worth criterion (AW) 200 5500 1000 1450 2000 10 240 6000 1150 700 2250 20 300 7500 1200 700 3250 20 If all pipes will last over the provided lifetimes and the company's minimum attractive rate of return (MARR) is 10%, which size of pipe would you choose according to the:
An oil and gas company considers five sizes of pipe for a new pipeline. The costs for each size are provided below. Cash flow item Initial investment ($) Annual operating & maintenance cost (AOC) ($) Salvage value ($) Annual income ($) Lifetime, years 140 3200 600 1000 1000 10 160 4000 950 1250 1500 10 Pipe size, mm a) Payback period b) Rate of return (ROR) c) Discounted profit to investment ratio (DPI) d) Annual worth criterion (AW) 200 5500 1000 1450 2000 10 240 6000 1150 700 2250 20 300 7500 1200 700 3250 20 If all pipes will last over the provided lifetimes and the company's minimum attractive rate of return (MARR) is 10%, which size of pipe would you choose according to the:
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 3MAD
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