In an environmental upgrade of a minimill making steel bar, it is found that a p
ID: 2455909 • Letter: I
Question
In an environmental upgrade of a minimill making steel bar, it is found that a purchase must be made for a large cyclone dust collector. It is the time of the year for capital budget submissions, so there is no time for quotations from suppliers. The last unit of that type was purchased in 1985 for $35,000. It had a 100 ft3/min capacity. The new installation in 2012 will require 1000 ft3/min capacity. The cost escalation for this kind of equipment has been about 5 percent per year. For budget purposes, estimate what it will cost to purchase the dust collector
Explanation / Answer
Installation having a 100ft/3min capacity priced at $ 35,000
New installation has 1000ft/3min capacity (which is ten times that of the original)
Hence, the cost will be $ 35,000 X 10 = $ 350,000
There is a cost escalation of 5% per year
Hence, the cost for purchasing the dust collector will be $ 350,000 X 105% = $ 372,500
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