Please answer all 4 questions with explanations and any equations used. New pump

Question

Please answer all 4 questions with explanations and any equations used.

New pumper system equipment is under consideration by a Gulf Coast chemical processing plant. One crucial pump moves highly corrosive liquids from specially lined tanks on intercoastal barges into storage and preliminary refining facilities dockside. Because of the variable quality of the raw chemical and the hih pressures imposed on the pump chassis and impellers, a close log is maintained on the number of hours per year that the pump operates. Safety records and pump component deterioration are considered critical control points for this system. As currently planned, rebuild and M&O; cost estimates are increased accordingly when cumulative operating time reaches the 6000-hour mark.

Explanation / Answer

We can solve this question for economic life determination based on calculating the present value of cash flows using the cumulative cost and number of operating hours. Using the formula, C= A/(1+r)^n, calculating cash flows we get the year 4th as the one with minimum present value cost.

At year 4, 25000/(1+0.1)^4=17074.9

Thus, ESL =4.

Maximum allowable rebuilds= 3. After every 3 years, the cumulative mark of required 6000 hours is reached.

2. The market value for ESL=6 years can be calculated as

25/(1.1) + 25/(1.1)^2+ 25/(1.1)^3 + 40/(1.1)^4 + 150/(1.1)^4 + 46/(1.1)^5 + 52.9/(1.1)^6 = $250368

4. It is justified that, the safety engineer will take the conservative estimates as per the requirement of his job which is rebuilding after 6 years and growth rate of 10%. However, the line engineer is taking considerations as per his job that equipment will support a life further after ESL=6 and have higher salvage value as estimated by safety engineer.  

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