Explore BrainMass
Share

Explore BrainMass

    Calculating equivalent annual cost: aging storage tank

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    An 8 year old storage tank has to be replaced or repaired because of severe corrosion. You have been asked to investigate three alternatives

    Replace tank to original specifications.

    -Repair tank with stainless steel lining.

    -Replace tank with stainless steel tank.

    You have obtained the following information: Shut down time allowed 10 days, each day over the 10 day period costs the company $5000 in lost revenue.

    Material and fabricating costs for STEEL TANK $50000, Installation cost $20000, Time required for installation is 8 days, life span is 8 years, annual maintenance cost is $2000, salvage value is zero.

    Material and fabricating costs for STAINLESS STEEL LINING $35000, Installation cost $30000, Time required for installation is 12 days, life span is 12 years, annual maintenance cost is $1000, salvage value is zero.

    Material and fabricating costs for STAINLESS STEEL TANK $75000, Installation cost $25000, Time required for installation is 10 days, life span is 16 years, annual maintenance cost is zero, salvage value is $5000.

    For a minimum attractive rate of return of 12%, which is the most economical alternative?

    (Use equivalent annual cost method)

    © BrainMass Inc. brainmass.com October 9, 2019, 10:43 pm ad1c9bdddf
    https://brainmass.com/business/finance/calculating-equivalent-annual-cost-aging-storage-tank-230339

    Solution Preview

    Please see ** ATTACHED ** file(s) for complete solutions and details!!

    Thanks!

    An 8 year old storage tank has to be replaced or repaired because of severe corrosion. You have been asked to investigate three alternatives

    Replace tank to original specifications.

    -Repair tank with stainless steel lining.

    -Replace tank with stainless steel tank.

    You have obtained the following information: Shut down time allowed 10 days, each day over the 10 day period costs the company $5000 in lost revenue.

    Material and fabricating costs for STEEL TANK $50000, Installation cost $20000, Time required for installation is 8 days, life span is 8 years, annual maintenance cost is $2000, salvage value is ...

    Solution Summary

    The solution calculates equivalent annual cost for aging storage tanks.

    $2.19