Arithmetic Gradient: Compute Equivalent Annual Maintenance and Repair Cost.

A textile mill in India installed a number of new looms. It is expected that initial maintenance costs and expenses for repairs will be high but will then decline for several years. The projected cost is:

What is the projected equivalent annual maintenance and , repair cost if interest is 1O%?

SOLUTION

The projected cash flow is not in the fonn of the arithmetic gradient factors.Both factors were derived for an increasing gradient overtime. The factors cannot be used directly for a declining gradient. Instead, we will subtract an increasing gradient from an assumed uniform series of payments.

The projected equivalen tuniform maintenance and repair cost is 15,714 rupees per year.