In: Finance
Parker County Community College (PCCC) is trying to determine whether to use no insulation or to use insulation that is either 1 inch thick or 2 inches thick on its steam pipes. The heat loss from the pipes without insulation is expected to cost $1.00 per year per foot of pipe. A 1-inch thick insulated covering will eliminate 88 % of the loss and will cost $0.50 per foot. A 2-inch thick insulated covering will eliminate 92 % of the loss and will cost $1.00 per foot. PCCC Physical Plant Services estimates that there are 215,000 feet of steam pipe on campus. The PCCC Accounting Office requires a 13.0 %/year return to justify capital expenditures. The insulation has a life expectancy of 10 years.
What is the present worth of each option?
No insulation____$
1 in insulation____$
2 in insulation____$
No Insulation | 1 Inch | 2 Inches | |
Present worth | ($1,166,642.35) | ($139,997.08) | ($93,331.39) |
2 Inch insulation is selected since its has highest NPV
Year | No Insulation | 1 Inch | 2 Inches |
0 | -107500 | -215000 | |
1 | -215000 | -25800 | -17200 |
2 | -215000 | -25800 | -17200 |
3 | -215000 | -25800 | -17200 |
4 | -215000 | -25800 | -17200 |
5 | -215000 | -25800 | -17200 |
6 | -215000 | -25800 | -17200 |
7 | -215000 | -25800 | -17200 |
8 | -215000 | -25800 | -17200 |
9 | -215000 | -25800 | -17200 |
10 | -215000 | -25800 | -17200 |
No Insulation | 1 Inch | 2 Inches | |
Present worth | ($1,166,642.35) | ($139,997.08) | ($93,331.39) |