PROBLEM SET NO.

2
ES 321

9. Alpha company is planning to invest in a machine the use of which will result in
the following:
Annual revenues of $10,000 in the first year and increases of $5,000 each
year, up to year 9. From year 10, the revenues will remain constant
(%52,000 for an indefinite period.
The machine is to be overhauled every 10 years. The expense for each
overhaul is $40,000.
If Alpha expects a present worth of at least $100,000 at a MARR of 10% for this
project, what is the maximum investment that Alpha should be prepared to
make?
CF diagram

Present worth total cash inflow: Pg PA P

5 ,000 ( 1 0.10 )9 1 1
Pg n 9
0.10 0.10 ( 1 0.10 )
Pg $97 ,107.35
1 ( 1 0.10 )9
PA 10 ,000
0.10
PA P 57 ,590.24
52 ,000
1 0.10
9
P Pg PA P P 375 ,228.35
0.10
P 220 ,530.76
Present worth total cash outflow: X InitialInvestment
40 ,000
X
1 01.0 10 1
X 25 ,098.16 X InitialInvestment 25 ,098.16 I
If Pg PA P X I $100 ,000 ; Solving I
I $375 ,228.35 $25 ,098.16 $100 ,000
I P 250 ,130.19