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 $1.30 per year per foot of pipe. A 1-inch thick insulated covering will eliminate 89% of the loss and will cost $0.40 per foot. A 2-inch thick insulated covering will eliminate 92% of the lost and will cost $0.85 per foot. PCCC Physical Plant Services estimates that there are 130,000 feet of steam pipe on campus. The PCCC Accounting Office requires a 10%/year return to justify capital expenditures. The insulation has a life expectancy of 10 years.
What is the annual worth of each option?
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