A chemical engineer is considering two styles of pipes for moving distillate fro

Question

A chemical engineer is considering two styles of pipes for moving distillate from a refinery to the tank farm. A small pipeline will cost less to purchase (including valves and other appurtenances) but will have a high head loss and, therefore, a higher pumping cost. The small pipeline will cost $1.7 million installed and will have an operating cost of $12,000 per month. A larger-diameter pipeline will cost $2.1 million installed, but its operating cost will be only $8000 per month. Which pipe size is more economical at an interest rate of 1% per month on the basis of an annual worth analysis? Assume the salvage value is 10% of the first cost for each pipeline at the end of the 10-year project period.

Explanation / Answer

PWsmall = -1,700,000-12,000(P/A,1%,120) + 170,000(P/F,1%,120)

PWsmall = -1,700,000-12,000(69.7005) + 170,000(.3030)

PWlarge= -2,100,000-9,000(P/A,1%,120) + 210,000(P/F,1%,120)

PWlarge = -2,100,000-9,000(69.7005) + 170,000(.3030)

The small pipe size costs less and is therefore the better deal.

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