Spread uniformly over five-year construction cycle

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In 2009, the average cost to construct a 150,000-barrel-a-day oil refinery was $2.4 billion (excluding any interest payments). This capital invest- ment is spread uniformly over a five-year construction cycle (i.e., the refinery starts producing products in 2014). Assume end-of-year cash-flow convention and answer the following questions. (Chapter 3 and 8.2)

a. If the cost of capital spent to build the refinery is 10% per year, how much interest will be charged (as a lump sum in 2014) during the construction of this project?

b. If the cost-capacity factor is 0.91, what is the approximate cost to build a 200,000-barrel-a-day refinery in 2009?

c. If inflation of the construction cost of a refinery is 9.2% per year, what is the estimated cost of building a 200,000-barrel-a-day refinery in 2019?

Reference no: EM131332451

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Spread uniformly over five-year construction cycle : In 2009, the average cost to construct a 150,000-barrel-a-day oil refinery was $2.4 billion (excluding any interest payments). This capital invest- ment is spread uniformly over a five-year construction cycle. If the cost of capital spent to build th..

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