A well consists of multiple concentric strings of casing

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Reference no: EM131849450

A deep water well in the Gulf of Mexico can take months to drill. A well consists of multiple concentric strings of casing (pipe) beginning with the outermost string. A drilling unit or “rig” drills through the bottom of each successive casing to a new depth and then cements a new inner string into the last section of the hole drilled. These steps are planned out in advance although variations in the time to complete each step are quite common. The casing, cement, drilling fluids, supporting equipment, etc. are assembled in advance and staged at the vendor’s yards (slips) for shipment offshore. Offshore supply vessels pick up the materials at port and transport the material offshore to the drilling unit. Since the cost of an offshore rig going idle due to a lack of material is extremely high, the company is considering procuring an additional vessel to meet maximum expectations to maximize drilling efficiency. There are two different types of vessels (200 and 400), each can hold a different amount of cargo and travels at a different speed. A type-200 vessel can be purchased for $450,000, has an estimated life of 12 years with no salvage value at the end of its useful life, and has an annual operations and maintenance (O&M) cost of $100,000. A type-400 vessel, on the other hand, can be purchased for $1,000,000, has an estimated life of 24 years, a salvage value of $180,000 at the end of its useful life, and an annual O&M cost of $72,000. Given a 5% per year expected rate of return, which vessel should be purchased based on.

a) The present worth (PW)?

b) The future worth (FW)?

c) The annual worth (AW)?

Reference no: EM131849450

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