The purchase price of a natural gas-fired commercial boiler (capacity X) was $181,000 eight years ago. Another boiler of the same basic design, except with capacity 1.42X, is currently being considered for purchase. If it is purchased, some optional features presently costing $28,000 would be added for your application. If the cost index was 162 for this type of equipment when the capacity X boiler was purchased and is 221 now, and the applicable cost capacity factor is 0.8, what is your estimate of the purchase price for the new boiler

$308,500.85

Explanation:

$181,000 eight years ago in real dollars was $181,000 / 162 = $111,728.40

new boiler with a 1.42X capacity x capacity factor = 1.42 x 0.8 = 1.136 (the price of the new boiler is 1.136 times the old boiler)

current price of the new boiler in real dollars = 1.136 x $111,728.40 = $126,923.46

real dollars converted to current nominal dollars = $126,923.46 x 2.21 = $280,500.85

price of the new boiler + additional optional features = $280,500.85 + $28,000 = $308,500.85

answer; ( prices are sticky);

answer; the correct answer is (direct foreign investment);