Answer to Question #191597 in Economics of Enterprise for nat

Question

The purchased and installation costs of some pieces of equipment are given as a function of weight rather than capacity. An example of this is the installed costs of large tanks. The 1990 cost for an installed aluminum tank weighing 450,000 kg was $640,000. For a size range from 90,000 to 450,000 kg, the installed cost-weight exponent for aluminum tanks is 0.93. If an aluminum tank weighing 300,000 lb is required, what is the capital investment needed in 2000?

Answer 1

Cost of tank weighing 450000 kg in 1990=$640000

Capacity factor=n=0.93

Cost index for 1990=357.6

Cost index for 2000=394.1

Cost of tank weighing 450000 kg in 2000=

$\frac {Cost index of 2000×cost of tank weighing45000 kg in 1990} {cost index of 1990}$

Cost of tank weighing 45000 kg in 2000;

$=\frac {394.1×\$640000} {357.6}$

Cost of tank weight 450,000 kg in 2000=$705,324.38

Cost of tank weight 300000 kg in 2000;

$Cost of tank weighing 45000 kg in 2000 ×{(\frac{300000 kg}{450000 kg}}) ^{0.93}$

Cost of tank weight 300000 kg in 2000;

=$705,324.38×0.686=$483,852.52

Cost of tank weight 300000 kg in 2000=$483,852.52