Oiley Corp has recently discovered new oil wells in the central part of Paris, T

Question

Oiley Corp has recently discovered new oil wells in the central part of Paris, Texas. As an intern at the company, you have been requested by your supervisor to estimate the cost for fabricating 5 new oil storage tanks with a capacity of 38,000 gallons each for the planned new refinery.

Oiley Corp company records indicate that a similar facility in Odessa Texas with storage tanks of capacity 10,000 gallons each cost $17,900 (fabrication cost per tank) five years ago. The fabrication cost index for oil storage tanks has increased from 120 five years ago to 180 today.

Explanation / Answer

Today's fabrication cost of 10000 gallons storage tank = 17900*180/120=26,850

So, fabrication cost of each 38000 gallons capacity storage tank = 26,850*38000/10000

= 102,030

Cost of 5 oil tanks with 38000 gallons capacity = 102,030*5 =$510,150

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