Question

A Pennsylvania coal mining operation has installed an in-shaft monitoring system for oxygen tank and gear readiness for emergencies. Based on maintenance patterns for previous systems, the costs increase for a time period, and then they level off. Maintenance costs are expected to be $350,000 in year 1, $385,000 in year 2, $ 423,500 in year 3 and amounts increasing by 10% per year through year 6 and remain constant thereafter for the expected 10 year life of the system.

1) Determine the equivalent annual uniform maintenance cost between years 1-10 at i=6% per year?

2) If the coal mine provides 1 million tons of coal every year, what would be the equivalent cost of increase per ton of coal if the system has been implemented?  

Answer 1