Jenny McCarthy is an engineer for a municipal power plant. The plant uses natural gas, which is

Question:

Jenny McCarthy is an engineer for a municipal power plant. The plant uses natural gas, which is currently provided from an existing pipeline at an annual cost of $10,000 per year. Jenny is considering a project to construct a new pipeline. The initial cost of the new pipeline would be $35,000, but it would reduce the annual cost to $5000 per year. Assume. an analysis period of 20 years and no salvage value for either the existing or new pipeline. The interest rate is 6%.

(a) Determine the equivalent uniform annual cost (EUAC) for the new pipeline?

(b) Should the new pipeline be constructed?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...