Question

use the cost index method to estimate the current construction cost for a building equivalent to one constructed in 1980 at a cost of $2.7 million. according to the engineering news-record, the 1980 average building cost index was 1941. suppose that the current year building cost index has been estimated at 3620.

Answer 1

To determine the current equivalent cost of a construction built in 1980 whose cost was $ 2.7 million, we must establish the relationship between the price index for that year, comparing it with that of the current year.

Taking into account that the average cost index for 1980 was 1941, and that said value is currently 3620, we can note that there was a significant increase in costs. Since 3620/1941 = 1.86, to determine the current cost of construction we must multiply its cost by 1.86.

So, since 2.7 x 1.86 = 5.022, we can establish that the equivalent cost at current prices of said building would have been $ 5,022,000.