Question

21 A pipeline enginer is considering alternative natural gas pipeline routings. The first route is mostly over land and the second is primarily undersea. Both pipelines will need some valve and fiing replacements in year 25. Cost data for each route is shown in Table P2.21. Notice that the undersea route has a higher initial cost due to higher installation cosdts and extra comosion peolection for the pipeline. However, the undersea route MARR for project is 15%. Determine which route should be pursued based on a present worth analysis. e has cheaper security and maintenance costs which substantially reduces annual costs. The

Answer 1

PW of costs, Over Land ($M) = 215 + 22 x P/A(15%, 50) + 30 x P/F(15%, 50)

= 215 + 22 x 6.6605** + 30 x 0.0009**

= 215 + 146.53 + 0.03

= 361.56

PW of costs, Undersea ($M) = 350 + 2 x P/A(15%, 50) + 70 x P/F(15%, 50)

= 350 + 2 x 6.6605** + 70 x 0.0009**

= 350 + 13.32 + 0.06

= 363.38

Since Over Land has lower PW of costs, this option should be selected.

**From P/A and P/F Factor tables