Q. 1 (a) Use the cost index method to estimate the current construction cost for

Question

Q. 1

(a) Use the cost index method to estimate the current construction cost for a building equivalent to one constructed in 1980 at a cost of $1.7 million. According to the Engineering News-Record, the 1980 average Building Cost Index was 1641. Suppose that the current year Building Cost Index has been estimated at 3350.

(b) Use the power-sizing model to estimate the cost of a piece of equipment that has 75% more capacity than a similar piece of equipment that cost $1,570. The appropriate power sizing exponent for this type of equipment is 0.625.

(c) Use a combined cost index and the power-sizing cost estimating model to estimate the current cost of a piece of equipment that has 65% more capacity than a similar piece of equipment that cost $35,000 seven years ago. The appropriate power-sizing exponent for this type of equipment is 0.725, and the ratio of the cost indexes (current to 7 years ago) is 1.35.

Explanation / Answer

Question 1

(a)

Construction cost in 1980 = $1.7 million

Cost index in 1980 = 1641

Cost index in current year = 3350

Calculate the current construction cost of building -

Current construction cost = Construction cost in 1980 * (Cost index in current year/Cost index in 1980)

Current construction cost = $1.7 million * (3350/1641) = $1.7 million * 2.04 = $3.47 million

Thus,

The curremt construction cost of building is $3.47 million.

(b)

It has been provided that required piece of equipment has 75% more capacity than a similar equipment.

So, ratio of capacity will be 1.75

Calculate the cost -

Cost = Cost of similar equipment * (ratio of capacity)power-sizing exponent

Cost = $1,570 * (1.75)0.625

Cost = $1,570 * 1.42

Cost = $2,229.4

Thus,

The estimated cost of the piece of equipment is $2,229.4

(c)

It has been provided that required piece of equipment has 65% more capacity than a similar equipment.

So, ratio of capacity will be 1.65

Ratio of the cost indexes is 1.35

Cost of similar piece of equipment = $35,000

Power-sizing exponent = 0.725

Calculate cost -

Cost = Cost of similar equipment * (ratio of capacity)power-sizing exponent * (ratio of cost indexes)

Cost = $35,000 * (1.65)0.725 * (1.35)

Cost = $35,000 * 1.44 * 1.35 = $68,040

The current cost of the piece of equipment is $68,040.

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