QUESTION TWO: $(20$ MARKS$)$

As a Chief engineer, you neod to come up with the cash flow estimate for a newly proposed

production line. Initially, the system is designed to have a maximum capacity $($Cmax$)$ of six

million parts to produce per year, but the demand is expected to grow at an annual compound

rate of $10\%.$ Whenever the annual demand reaches $80\%$ of the maximum designed capacity,

the maximum designed capacity must be doubled in the subsequent ycar. The cost of meeting

these future demands, as well as other projected financial data, are as follows:

Cost of building the production system as a function of maximum designed capacity:

$1\mathrm{.}5M+0\mathrm{.}5(C_{\text{m}\text{a}\text{x}}{)}^{0\mathrm{.}7}.$

Initial demand $=3$ million parts per year.

Demand growth rate $=10\%$ per year.

Project life $=15$ years.

Revenucs per year $=$ demand during year $n(5{)}^{1\mathrm{.}05}.$

Expenses per year $=$$$12,000+$ demand during year $n(2{)}^{1\mathrm{.}08}.$

Estimate the project cash flows over the project life. Tabulate your results