Chapter 10: Uncertainty in Future Events
(a) Some reasons why a pole might be removed from useful service:
The pole has deteriorated and can no longer perform its function of safely
supporting the telephone lines
The telephone lines are removed from the pole and put underground.
no longer being needed, are removed.
Poles are destroyed by damage from fire, automobiles, etc.
The street is widened and the pole no longer is in a suitable street location.
The pole is where someone wants to construct a driveway.
(b) Telephone poles face varying weather and soil conditions; hence there may be large
variations in their useful lives.
Typical values for Pacific Telephone Co. in California
Most Likely Life:
Recognizing there is a mortality dispersion it would be possible, but impractical, to define
optimistic life as the point where the last one from a large group of telephone poles is
removed (for Pacific Telephone this would be 83.5 years).
Instead, the optimum life is where only a small percentage (often 5%) of the
group remains in service.
Similarly, pessimistic life is when, say, 5% of the original
group of poles have been removed from the group.
If 16,000 km per year, then fuel cost = oil/tires/repair = $990/year, and salvage value =
9,000 - 5x16,000x.05 = 9,000 – 4,000 = 5,000
,8%,5) + 2x990 – 5,000(
= 9,000x.2505 + 1,980 – 5,000x.1705
= 2,254.5 + 1,980 - 852.5 = $3,382
Increasing annual mileage to 24,000 is a 50% increase so it increases operating costs by
50%. The salvage value drops by 5x8,000x.05 = 2,000
,8%,5) + 2x1.5x990 – 3,000(
= 9,000x.2505 + 1.5x1,980 - 3000x.1705
= 2,254.5 + 2,970 - 511.5 = $4,713
Decreasing annual mileage to 8,000 is a 50% decrease so it decreases operating costs by
50%. The salvage value increases by 5x8,000x.05 = 2,000
,8%,5) + 2x.5x990 – 7,000(
= 9,000x.2505 + .5x1,980 – 7,000x.1705
= 2,254.5 + 990 - 1193.5 = $2,051