Contemporary Engineering Economics 6th Edition by Chan Park

تمرين 54

On March 17, 2013, the Wildcat Oil Company began operations at its Louisiana oil field. The oil field had been acquired several years earlier at a cost of $32.5 million. The field is estimated to contain 6.5 million barrels of oil and to have a salvage value of $3 million both before and after all of the oil is pumped out. Equipment costing $480,000 was purchased for use at the oil field. The equipment will have no economic usefulness once the Louisiana field is depleted; therefore, it is depreciated on a units-of-production method. In addition, Wildcat Oil built a pipeline at a cost of $2,880,000 to serve the Louisiana field. Although this pipeline is physically capable of being used for many years, its economic usefulness is limited to the productive life of the Louisiana field; therefore, the pipeline has no salvage value. Depreciation of the pipeline is based on the estimated number of barrels of oil to be produced. Production at the Louisiana oil field amounted to 420,000 barrels in 2015 and 510,000 barrels in 2016.
(a) Compute the per barrel depletion rate of the oil field during the years 2015 and 2016.
(b) Compute the per barrel depreciation rates of the equipment and the pipeline during the years 2015 and 2016.