Reference no: EM131526815

An oil well is located 40 miles from a refinery. The well produces a continuous 95BBL/hr. The entire production from the well is to be transported to the refinery plant by tractor trailers, each capable of carrying 10,000 gallons of oil. The average time for a tractor trailer to make a round trip to the oil well is 3.0 hours. The trucks can be filled from the well or from a storage tank which can fill a tank truck in 30 minutes (including the time to empty the tank at the refinery). Tractor trailers cost $ 125,000 and have a salvage value of $50,000 after 5 years. Drivers are compensated with a wage and benefit package of $30 per hour which breaks down into $20 wages and $10 benefits. The trucks have a fuel economy of 6MPG and fuel costs $2.20 per gallon. For a company MARR of 12%, calculate the transportation cost per barrel of oil. Driver time in excess of 8 hours per day or 40 hours per week earns time and a half per hour. Overtime pay is based on wages only, benefits only apply to the weekly 40 hours of straight time. Storage tanks are available at $150 per barrel and are expected to have a useful life of 25 years with no salvage.

How much could the company afford to pay for a pipeline from the well to the refinery?