Company a is considering building a new warehouse, which has 30% more square footage than the old warehouse. the old warehouse was constructed 9 years ago, with a cost of $2. during the past 9 years, the cost of constucting a warehouse have risen by an average of 5% per year. if the cost-capacity factor, based on square footage, is 0.8, what would be the estimated cost of the new warehouse? round your answer to the nearest integer.

The cost of the new warehouse will be $38274

Explanation:

For this calculation we can use the cost-capacity equation:

Where:

C2: Cost of new warehouse with known capacity Q2

C1: Cost of old warehouse with known capacity Q1

Q2: Capacity of new warehouse

Q1: Capacity of old warehouse

x: Cost-Capacity Factor

Let's consider Q1 as "Q", so Q2 will be "1.3Q", because the new warehouse will have a 30% more of capacity than the old one. x is equal to 0.8. Now, let's calculate C1 because the $20000 cost was nine years ago, so we have to calculate the present cost, which will be, C1.

For that, we can use this expression;

Where:

PC: Present Cost of the warehouse; $20000

i: increment; that is 5% per year

n= number of years; 9

Replacing the data on the equation, we obtain:

Now, we replace C1 on the first equation:

We can eliminate the "x" variable and make the operation.

C2 = $38274, we approximate to the next integer because we are talking about costs

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