Annual replacement and downtime costs could be eliminated

Assignment Help Financial Management

Reference no: EM131012837

You are the manager of a large crude-oil refinery. As part of the refining process, a certain heat exchanger (operated at high temperatures and with abrasive material flowing through it) must be replaced every year. The replacement and downtime cost in the first year is $165,000. This cost is expected to increase due to inflation at a rate of 9% for five years(i.e. until the EOY 6) , at which time this particular heat exchanger will no longer be needed. If the company's cost of capital is 15% per year, how much could you afford to spend for a higher quality heat exchanger so that these annual replacement and downtime costs could be eliminated?

You could afford to spend $_________ thousands for a higher quality heat exchanger (round to 3 decimal places)

Reference no: EM131012837

Questions Cloud

Stated annual rate-corresponding effective annual rate : A bond pays 1.5% at the end of every quarter over 5 years. What would be the corresponding ‘stated annual rate’ and the corresponding ‘effective annual rate’?

How the problems associated with your special population : Identify the characteristics and specific needs of the selected special population. Describe how the problems associated with your special population can be resolved

Ultimate objective of a corporate management team : What should be the ultimate objective of a corporate management team in terms of how it runs its business? Why? Can you cite an incorrect objective and explain how it might serve the firm poorly over the long-term? Quickly outline the two main areas ..

What is the present value of an ordinary annuity : What is the present value of an ordinary annuity of $1,000 per year for 7 years discounted back to the present at 10 percent? What would be the present value if it were an annuity due? What is the future value of an ordinary annuity of $1,000 per yea..

Annual replacement and downtime costs could be eliminated : You are the manager of a large crude-oil refinery. As part of the refining process, a certain heat exchanger (operated at high temperatures and with abrasive material flowing through it) must be replaced every year. If the company's cost of capital i..

Determine velocity of flow at the exit of the pipeline : For the remaining 15 m of its length, the diameter remains uniform at 200 mm. The height of water level in the tank is 5 m above the axis of the pipe. Determine the velocity of flow at the exit of the pipeline considering all losses. Assume Darcy'..

What is the purpose of the drug protamine : Which member of the surgery team is responsible for assessing how the heart is functioning during surgery?

The advantages and disadvantages of the technology : Write a 1,050- to 2,100-word paper, in which you include the following: A description of the technology. The advantages and disadvantages of the technology

Which is the most abundant noble gas in the air : Which is the Most abundant Noble gas in the air ? Name the element

User Account

All Pages