Useful Lives = the Analysis Period, Arithmetic Gradient, Block Functions

Dave owns his own private business in Hawaii flying helicopter tours around the islands. Maintenance is critical, but expensive. During his current down time, he has found a part that will save him operational and maintenance dollars over a five year period. He is looking at two suppliers:

a) Purchase price $20,000, estimated savings $6000 per year for 5 years.

b) Purchase price $10,000, estimated savings beginning at $3500 at end of year 1, and increasing by $500 per year through year 5.

If he can finance the part at 5%, which option should he choose?

In this question, provide the formulas and any other comments on how you completed the problem.

Hints: Use one of the block functions for option b. For both options, treat the initial cost separately from the annual savings calculations.