3-16. A biotech firm is considering abandoning its old plant, built 23 years ago

Question

3-16. A biotech firm is considering abandoning its old plant, built 23 years ago, and constructing a new facility that has 50% more square footage. The original cost of the old facility was $300,000, and its capacity in terms of standardized production units is 250,000 units per year. The capacity of the new laboratory is to be 400,000 units per year. During the past 23 years, costs of laboratory construction have risen by an average of 5% per year. If the cost-capacity factor, based on square footage, is 0.80, what is the estimated cost of the new laboratory? (3.4)

Explanation / Answer

C(Sd ) = C(sr ) X [ Q(Sd ) / Q(Sr ) ] x

C(Sd ) = cost at desired size

C(sr ) = cost at reference size

Q(Sd ) = capacity at desired size

Q(Sr ) = capacity at reference size

X = cost capacity factor

C(Sd ) = $300,000 X [ 400,000 / 250,000 ] 0.80

C(Sd ) = $ 436,935.40

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