Problem:
The heat loss through the exterior walls of a certain poultry processing plant is estimated to cost the owner $2,800 next year. A salesman from Superfiber Insulation, Inc., has told you, the plant engineer, that he can reduce the heat loss by 80% with the installation of $17,500 worth of Superfiber now. If the cost of heat loss rises by $170 per year (uniform gradient) after the next year and the owner plans to keep the present building for 13 more years, what would you recommend if the interest rate is 9% per year? Please describe in detail and illustrate out all workings.
(Hint: Use an interest and annuity table for discrete compounding when i=9% per year.)