Question

Question 20 of 23 Question 20 5 points Weirton Steel signed a 5-year contract to purchase water treatment chemicals from a local distributor for 55000 per year. When the contract and the cost of the chemicals expected to increase by 550 per year for the next 5 years. If an initial investment in storage tanks is $15.000, and a maintenance cost is $150 per year in the A overall cost over the 10 years. Interest rate 10m. (closest answer) l worth for the 7645.2 46975.9 5467.8 none of the above

Answer 1

(20) (A)

PW of total cost (TC) is computed as follows, where

TC = Initial cost + Chemical cost + Maintenance cost

Year	First Cost	Chemical Cost	Maintenance	TC	PV factor @10%	Discounted TC
0	15,000			15,000	1.0000	15,000
1		5,000	150	5,150	0.9091	4,682
2		5,000	150	5,150	0.8264	4,256
3		5,000	150	5,150	0.7513	3,869
4		5,000	150	5,150	0.6830	3,518
5		5,000	150	5,150	0.6209	3,198
6		5,050	150	5,200	0.5645	2,935
7		5,100	150	5,250	0.5132	2,694
8		5,150	150	5,300	0.4665	2,472
9		5,200	150	5,350	0.4241	2,269
10		5,250	150	5,400	0.3855	2,082
					PW of TC ($) =	46,975

AW of costs = PW / P/A(10%, 10) = 46,975 / 6.1446 = 7,645.20

(21) (C)

PW computed as follows.

Year	Cash flow	PV Factor @12%	Discounted cash flow
1	2,000	0.8929	1,786
2	2,160	0.7972	1,722
3	2,333	0.7118	1,660
4	2,519	0.6355	1,601
5	2,721	0.5674	1,544
6	2,939	0.5066	1,489
7	3,174	0.4523	1,436
8	3,428	0.4039	1,384
9	3,702	0.3606	1,335
10	3,998	0.3220	1,287
		PW of cash flows =	15,244