Considering purchase of new petroleum processing equipment

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Reference no: EM131049059

Odessa Oil Company is considering the purchase of new petroleum processing equipment. The relevant data for the alternative under consideration are presented below.

First Cost $278,750

Annual Income $125/barrel of processed petroleum

Annual Operating Costs $25,500 the first year increasing $2,000 each year thereafter

Annual Property Taxes 8% of first cost

Annual Insurance 4% of first cost payable at the end of each year

Salvage Value 15% of first cost

Useful Life 10 years

Odessa Oil Company’s minimum attractive rate of return is 7%. Determine the number of barrels/year of petroleum that must be processed in order to justify purchasing the machine.

Reference no: EM131049059

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