Question

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10) An oil company is planning to install a new pipeline to connect storage tanks to a processing plant 1500 m away. A 120 mm pipe is being considered with the following characteristics. What is the benefit-cost ratio for this pipe using an annual interest rate of 10%? Initial cost $2500 Service Life 12 Years Salvage Value $300 Annual Maintenance $300 Pump Cost/Hour $1.40 Pump Operation 600 hours/year Estimated Benefits $2000/year a. 1.22 b. 1.34 c. 1.45 d. 2.10

Answer 1

Ans: Benefit cost -ratio= total benefits to total cost

total benefits=2000*12

=24,000

total cost= (2500+{330*12}+{1.40*600*12})

=2500+3960+10080

=16,540

Required ratio=24000:16,540

= 1.45

**330= annual maintenance+10% interest