A contractor has been awarded the contract to construct a 6-mile-long tunnel in the mountains. During the 5-year construction period, the contractor will need water from a nearby stream. She will construct a pipeline to carry the water to the main construction yard. An analysis of costs for various pipe sizes is as follows: Pipe Sizes (in.) 6 4 3 2 $30,000 $25,000 $23,000 $22,000 Installed cost of pipeline and pump $0.40 $0.50 $0.65 $1.20 Cost per hour for pumping At the end of 5 years, the pipe and pump will have a salvage value equal to the cost of removing them. The pump will operate 2000 hours per year. The lowest interest rate at which the contractor is willing to invest money is 7%. (The minimum required interest rate for invested money is called the minimum attractive rate of return, or MARR.) Select the alternative with the least present worth of cost.

We can compute the present worth of cost for each alternative. For each pipe size, the present worth of cost is equal to the installed cost of the pipeline and pump plus the present worth of 5 years of pumping costs. Pipe Size (in.) 6 4 3 2 $30,000 $25,000 $23,000 $22,000 Installed cost of pipeline and pump 9,840 1.20 × 2000 hr × (P/A, 7%, 5) 5,330 0.65 × 2000 hr × 4.100 4,100 0.50 × 2000 hr × 4.100 3,280 0.40 × 2000 hr × 4.100 $33,280 $29,100 $28,330 $31,840 Present worth of cost Select the 3-in. pipe, since the lowest present worth of cost.

Question 5.8: A contractor has been awarded the contract to construct a 6-...

Engineering Economic Analysis

A contractor has been awarded the contract to construct a 6-mile-long tunnel in the mountains. During the 5-year construction period, the contractor will need water from a nearby stream. She will construct a pipeline to carry the water to the main construction yard. An analysis of costs for various pipe sizes is as follows:

Pipe Sizes (in.)
6	4	3	2
$30,000	$25,000	$23,000	$22,000	Installed cost of pipeline and pump
$0.40	$0.50	$0.65	$1.20	Cost per hour for pumping

At the end of 5 years, the pipe and pump will have a salvage value equal to the cost of removing them. The pump will operate 2000 hours per year. The lowest interest rate at which the contractor is willing to invest money is 7%.
(The minimum required interest rate for invested money is called the minimum attractive rate of return, or MARR.) Select the alternative with the least present worth of cost.

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