8-18. In 2009, the average cost to construct a 160,000-barrel-a-day oil refinery was $2.6 billion

(excluding any interest payments). This capital investment is spread uniformly over a five-year construction cycle

(i.e., the refinery starts producing products in 2014).

Assume end-of-year cash-flow convention and answer the following questions. (Chapter 3 and 8.2)

a. If the cost of capital spent to build the refinery is 12%

per year, how much interest will be charged (as a lump sum in 2014) during the construction of this project?

b. If the cost-capacity factor is 0.95, what is the approximate cost to build a 200,000-barrel-a-day refinery in 2009?

c. If inflation of the construction cost of a refinery is 9% per year, what is the estimated cost of building a 200,000-barrel-a-day refinery in 2019?