Parker County Community College (PCCC) is trying to determine whether to use no insulation or to use insulation that is either 1 inch thick or 2 inches thick on its steam pipes. The heat loss from the pipes without insulation is expected to cost $1.70 per year per foot of pipe. A 1-inch thick insulated covering will eliminate 84 % of the loss and will cost $0.35 per foot. A 2-inch thick insulated covering will eliminate 92 % of the loss and will cost $0.95 per foot. PCCC Physical Plant Services estimates that there are 290,000 feet of steam pipe on campus. The PCCC Accounting Office requires a 8.5 %/year return to justify capital expenditures. The insulation has a life expectancy of 10 years.
What is the present worth of each option?
No insulation:
1-inch insulation:
2-inch insulation: