Solve Problem 2.5 including the effect of taxes and depreciation. For tax purposes, the economic life and salvage value are the same as given in Problem 2.5.
The pipeline equipment is depreciated using the SLD method and the company’s tax rate is 50%.

Problem 2.5

In a chemical processing plant, liquid cyclohexane (ρ = 48.5 lbm/ft3) flows through a piping system (pump, piping, valves, etc.) at a rate of 1000 gpm as it is being transported from one process to the next. The pressure drop through the pipe system is 6.2 psi. The facility is automated and runs 24 hours/day, 7 days/week all year long. The cost of energy to operate the pump in the system is $0.11/kWh.
Annual maintenance costs for the piping system are estimated to be 5% of the annual operating cost. The annual income resulting from the piping system is $18,000. The initial cost of the piping system is $62,000. The system is expected to last for 15 years with no salvage value. Determine the rate of return that this piping system provides.