PROBLEM SET NO.

2
ES 321

4. A small company purchase now for $23,000.00 will lose $1,200 each
year for the first four years. An additional $8,000 invested in the
company during the fourth year will result in a profit of $5,500 each
year form fifth year through the fifteenth year. After 15 years, the
company can be sold for $33,000. a) Determine the IRR and b)
Calculate the FW if MARR = 12%.

CF diagram

At focal date year 0:

Cash outflows: Co
1 ( 1 i )4 4
Co 23,000 1,200 8 ,000( 1 i )
i

Cash inflows: Ci
1 ( 1 i )11
Ci 5 ,500
i

4
( 1 i ) 33,000( 1 i )
15

1 ( 1 i )4 4
23 ,000 1,200 8 ,000( 1 i )
i
1 ( 1 i )

10
5 15
5 ,500
i ( 1 i ) 33 ,000( 1 i )

Solving for i :

i 10.0111 %