Daroy, Joselito O. PROBLEM SET NO.

2
ES 321

1. A certain fluidized-bed combustion vessel has an investment cost

of $100,00, a life of 10 years and negligible market (resale)
value. Annual cost of materials, maintenance, and electric power
for the vessel are expected to total to $8,000.00. A major relining
of combustion vessel will occur during the fifth year at a cost of
$20,000; during this year, the vessel will not be in service. If the
interest rate is 15% per year, what is the lump sum equivalent
cost of this project at the present time?

A = annual cost = $8,000

i =interest rate per year = 15%
n = 10 years
IC =initial investment cost = $100,000
A5 = $20,000

Present worth = IC +
A
i
[ ]
1 − ( 1 + i )−10 + ( A5 − A )( 1 + i )−5

Present worth
$8 ,000
= $100 ,000 +
0.15
[ ]
1 −( 1 + 0.15 )−10 + ($ 20 ,000 − $8 ,000 )( 1 + 0.15 )−5

Present worth = $146 ,116 .27