A firm of engineers obtains the right to dig and exploit an undersea tunnel. Each day the firm borrows enough money to pay for the day's digging, which costs £c, and to pay the daily interest of 100k% on the sum already borrowed. The tunnel takes T days to build, and, once finished, earns £d a day, all of which goes to pay the daily interest and repay the debt until it is fully paid. The financial transactions take place at the end of each day's work. Show that Sn, the total amount borrowed by the end of day n, is given by Sn=kc[(1+k)n−1] for n⩽T.
Given that ST+m>0, where m>0, express ST+m in terms of c,d,k,T and m.
Show that, if d/c>(1+k)T−1, the firm will eventually pay off the debt.