Question

Parker County Community College (PCCC) is trying to determine whether to use no insulation or to use inisulation 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 75% of the loss and will cost $0.35 per foot. A. 2-inch thick insulated covering will eliminate 92% of the loss and will cost $0.80 per foot. PCCC Physical Plant Services estimates that there are 255,000 feet of steam pipe on campus. The PCCC Accounting Office requires a 9.0% year return to justify capital expenditures. The insulation has a life expectancy of 10 years. Click here to access the TVM Factor Table Calculator Parta What is the present worth of each option? No insulation: $ 1-inch insulation:\$ 2-inch insulation: 5

Answer 1

Step-by-step explanation:

To calculate the present worth of each option, we need to consider the cost of the insulation, the heat loss savings, and the required return rate.

1. No insulation:

The cost of heat loss per foot of pipe without insulation is $1.00 per year.

The present worth of heat loss for no insulation over 10 years can be calculated as follows:

Present Worth = Cost of heat loss per year * Number of feet of pipe * Present worth factor for 10 years at 9% return rate

Present Worth = $1.00/ft/year * 255,000 ft * Present worth factor for 10 years at 9% return rate

2. 1-inch insulation:

The cost of 1-inch insulation per foot of pipe is $0.35.

The heat loss reduction with 1-inch insulation is 75%, which means only 25% of the original heat loss remains.

The present worth of heat loss for 1-inch insulation over 10 years can be calculated as follows:

Present Worth = Cost of heat loss per year * Number of feet of pipe * Heat loss reduction * Present worth factor for 10 years at 9% return rate

Present Worth = ($1.00/ft/year * 255,000 ft * 0.25) + ($0.35/ft * 255,000 ft * Present worth factor for 10 years at 9% return rate)

3. 2-inch insulation:

The cost of 2-inch insulation per foot of pipe is $0.80.

The heat loss reduction with 2-inch insulation is 92%, which means only 8% of the original heat loss remains.

The present worth of heat loss for 2-inch insulation over 10 years can be calculated as follows:

Present Worth = Cost of heat loss per year * Number of feet of pipe * Heat loss reduction * Present worth factor for 10 years at 9% return rate

Present Worth = ($1.00/ft/year * 255,000 ft * 0.08) + ($0.80/ft * 255,000 ft * Present worth factor for 10 years at 9% return rate)

To calculate the present worth factors at a 9% return rate, you can use a TVM (Time Value of Money) calculator or refer to a TVM factor table.

Once you calculate these values, you will have the present worth of each option: no insulation, 1-inch insulation, and 2-inch insulation.