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 $2.00 per year per foot of pipe. A 1-inch thick insulated covering will eliminate 79 % of the loss and will cost $0.25 per foot. A 2-inch thick insulated covering will eliminate 92 % of the loss and will cost $0.90 per foot. PCCC Physical Plant Services estimates that there are 220,000 feet of steam pipe on campus. The PCCC Accounting Office requires a 10.5 %/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: $______
Which insulation (if any) should be purchased using a ranking present worth analysis?