Longhorn Energy Is Planning a $340 Million Expansion of Two

Short Answer

Longhorn Energy is planning a $340 million expansion of two major pipelines in Texas. The Austin- based pipeline company will add 56 miles of 36- inch pipeline and 20,000 horsepower of compression. The expansion will increase the capacity of the Katy pipeline in southeast Texas to more than 1.1 billion cubic feet per day from 700,000 million cubic feet per day. Net revenue per cubic foot is $1.25 and the pipeline is expected to have a resale value of 28 million at the end of year 38. Determine the capital recovery cost of this investment if the minimum attractive rate of return is 14% per year.