1 A company that manufactures air-operated drain valve assemblies budgeted $84,000 per year for repair components over the next five years. Assume the company uses an interest rate of 10% per year. (a) If the company expects to spend $15,000 in year 1, what is the annual increase (arithmetic gradient) that the company expects in the cost of the parts

Formula to be used is to calculate annual payment is:

A=G [ 1/I - n/[ (1+I) ^n - 1] ];

G - arithmetic gradient

n - number of years

I - interest rate

So,

84,000 = 15,000 + G [1/0.1 - 5/[ (1+0.1) ^5 - 1] ]

84,000 = 15,000 + G [10 - 5/[1.61051 - 1] ]

84,000 = 15,000 + G [10 - 5/0.61051]

84,000 = 15,000 + G [10 - 8.18987403974 ]

69,000 = 1.81012596026 G

G = 69,000 / 1.81012596026 = 38118.8942178