A new aerated sewage lagoon is required in a small town in 2020. In 2015, one...

A new aerated sewage lagoon is required in a small town in 2020. In 2015, one was built on a similar site in a nearby city for $3 million.The new lagoon is 75% larger, and its power sizing exponent is 0.90. The cost index for 2015 is 180, whereas the one in 2020 is 400. Estimate the cost of new lagoon in 2020.

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Expert Solution

Real Cost of new =Real cost of old*(size of new/size of old)^n where n is power sizing exponent

So, Real cost of new lagoon=$3,000,000*(1.75)^0.9=$4,964,271.2

Nominal cost=(new cost index/Base cost index)* Real cost=400/180*4,964,271.2=$11,031,713.8 or ~$11mm

Rahul Sunny answered 1 year ago

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