Question: A company expects to install smog control equipment on the exhaust of a gasoline engine. The local smog control district has agreed to pay to

A company expects to install smog control equipment on the exhaust of a gasoline engine. The local smog control district has agreed to pay to the firm a lump sum of money to provide for the first cost of the equipment and maintenance during its l0-year useful life. At the end of 10 years the equipment, which initially cost $10,000, is valueless. The company and smog control district have agreed that the following are reasonable estimates of the end-of-year maintenance costs:

Year 1 $500 Year 6 $200

2 100 7 225

3 125 8 250

4 150 9 275

5 175 10 300

Assuming interest at 6% per year how much should the smog control district pay to the company now to provide for the first cost of the equipment and its maintenance for 10 years?

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