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