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16 December, 22:03

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

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  1. 17 December, 00:40
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    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
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