You just purchase a 25,000-watt generator for $85,775, as replacement for a 15,000-watt generator bought 10-years ago. You are curious what was paid for the older, similar model. So you review spec manuals to find a 2009 cost index of 420 and 2019 cost index of 675, with a correlating coefficient of 0.85. The cost of the generator 10-years ago was closes to?
a. $26,800 c. $41,20 b. $30,100 d. $34,500
Correct Answer:
D
Working note:
Let, cost of the generator 10 years ago = P
85775 = P*(25000/15000)^.85 * (675/420)
P = 85775 / ((25000/15000)^.85 * (675/420))
P = $34572.8 ( it is closest to $34500)
You just purchase a 25,000-watt generator for $85,775, as replacement for a 15,000-watt generator bought 10-years...