An oil production platform in Alaska's Cook Inlet will operate for 15 more years. At the end of that time, environmental regulations require dismantlement and removal. The current cost of this would be $10 million, but the cost is expected to increase by 5% per year.

(a) What is the present value of the future cost? Assume an annual discount rate of 11% (compounded annually).

(b) Suppose new regulations require the oil platforms owner to contribute an equal annual nominal amount to build up a trust fund sufficient to cover dismantlement and removal at the end of year 15. The trust fund has to be invested in U.S. Treasury bonds yielding 6.5% per year. How much will the oil company have to put in at the end of each year?