Your company is using a plant of size 10,000 sq. ft. that was constructed in 2006...

Your company is using a plant of size 10,000 sq. ft. that was constructed in 2006 for $300,000. The cost indices that correspond to this size of a plant for 2006 and 2014 are 145 and 186 respectively. If the power-sizing exponent is 0.55, how much would it cost to build a 40,000 sq. ft. warehouse in 2014?

Note: Answer would be $816,026. Please include complete explanation and step-by-step solution.

Expert Solution

As per the given condition, a 10,000 sq. ft size company was constructed in 2006 at a total cost of $300,000. We need to find out how much would it cost us if we need to build a building of size 40,000 sq. ft. in 2014. The other given conditions are: The cost index of the plant in 2006 was 145 and in 2014 in the cost index is 186. Also given is that the power sizing exponent is 0.55.

To calculate the cost of the building in 2014, we would first need to find out the cost of the 40,000 sq. ft building in 2006. To calculate this, we will need the given condition of the power-sizing exponent. Through the power sizing exponent, we will calculate the true value price of the building of size 40,000 sq. feet in 2006:

Here, we have calculated the cost of 40,000 sq. ft. building in 2006. Now , we will calculate the cost of the 40,000 sq.ft. building in 2014 using the cost indices given for the two years in the given conditions:

Therefore, $ 812,700 is the estimated cost of the 40,000 sq.ft. building in 2014.

Rahul Sunny answered 2 years ago

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