Nippon Steel’s expenses for heating and cooling a large manufacturing facility are expected to increase according to an arithmetic gradient beginning in year 2. If the cost is $550,000 this year (year 0) and will be $550,000 again in year 1, but then are estimated to increase by $40,000 each year through year 12, what is the equivalent annual worth in years 1 to 12 of these energy costs at an interest rate of 10% per year?

Question

What will be an ideal response?

Answer 1

A = 550,000(A/P,10%,12) + 550,000 + 40,000(A/G,10%,12)
= 550,000(0.14676) + 550,000 + 40,000(4.3884)
= $806,254