Basics of Engineering Economy 1st Edition by Leland Blank,Anthony Tarquin

Exercise 6

BP Oil is in the process of replacing sections of its Prudhoe Bay, Alaska oil transit pipeline.This will reduce corrosion problems, while allowing higher line pressures and flow rates to downstream pro­cessing facilities.The installed cost is expected to be about $70 million.Alaska imposes a 22.5% tax on annual profits (net revenue over costs), which are estimated to average $5 million per year for a 20 year period.( a ) At a corporate MARR of 10% per year, does the project AW indicate it will make at least the MARR? ( b ) Recalculate the AW at MARR values increasing by 10% per year, that is, 20%, 30%, etc.At what required return does the project become financially unacceptable?