QUESTION 7

1. An engineer has recently purchased a new piece of equipment to use in analyzing geological formations. The equipment has no maintenance costs the first year due to a one year's free maintenance warranty. In the second year, it is expected to cost $20 to maintain the equipment and in subsequent years the cost of maintenance will increase by $20 per year (i.e. maintenance cost is $40 in year three, $60 in year four, and so on). Approximately what amount must be set aside now at 9% interest to pay the cost of maintaining the equipment over the first six years of ownership?