A plastic$-$manufacturing company owns and operates a

polypropylene production facility that converts the propylene from

one of its cracking facilities to polypropylene plastics for outside

sale. The polypropylene production facility is currently forced to

operate at less than capacity due to an insufficiency of propylene

production capacity in its hydrocarbon cracking facility. The

chemical engineers are considering alternatives for supplying

additional propylene to the polypropylene production facility. Two

feasible alternatives are to build a pipeline to the nearest outside

supply source and to provide additional propylene by truck from

an outside source. The engineers also gathered the following

projected cost estimates:

Future costs for purchased propylene excluding delivery:

$$\frac{0\mathrm{.}473}{k}g.$

Cost of pipeline construction: $$\frac{121000}{k}m($pipeline$).$

Estimated length of pipeline: $250km.$

Transportation costs by tank truck: $10\frac{\text{\$}}{k}g,$ utilizing a common

carrier.

Pipeline operating costs: $$\frac{0\mathrm{.}01}{k}g,$ excluding capital costs.

Projected additional propylene needs: $80Gg$ per year.

Projected project life: $18$ years.

Estimated salvage value of the pipeline: $8\%$ of the installed

costs.

Determine the propylene cost per kilogram under each option if

the firm's MARR is $22\%.$ Which option is more economical?

Suppose:

Option $1$: to build a pipeline to the nearest outside supply source.

Option $2$: to provide additional propylene by truck from an outside

source.

Equivalent Annual Cost:

AEC$(22\%{)}_1=$$

AEC$(22\%{)}_2=$$

Propylene cost per kilogram:

$C_1=$ cents $\frac{?}{kg}$

$C_2=$ cents $\frac{?}{kg}$

More economical option: