2-49) A refinisher of antiques named Constance has been so successful with her small business that sheis planning to expand her shop. She is going to start enlarging her shop by purchasing the followingequipment. Assume the prices for the equipment that Constance wants to replace have not beenconstant. Use the cost index data for each piece of equipment to update the costs to the price thatwould be paid today. What would be the net cost to Constance to obtain this equipment? Assume thatshe can trade the old equipment in for 15% of its original cost.EquipmentVarnish bathPower scraperPaint boothOriginalSize50 gal% hp3 ft³Cost ofOriginalEquipmentPower-SizingExponent$3500 0.80$2500.22$3000 0.6NewEquipmentSize75 gal1.5 hp12 ft³OriginalCost Index15478049Cost IndexToday17190076

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What would be the net cost to Constance to obtain this equipment?.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 9E

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Question

2-49) A refinisher of antiques named Constance has been so successful with her small business that she
is planning to expand her shop. She is going to start enlarging her shop by purchasing the following
equipment. Assume the prices for the equipment that Constance wants to replace have not been
constant. Use the cost index data for each piece of equipment to update the costs to the price that
would be paid today. What would be the net cost to Constance to obtain this equipment? Assume that
she can trade the old equipment in for 15% of its original cost.
Equipment
Varnish bath
Power scraper
Paint booth
Original
Size
50 gal
% hp
3 ft³
Cost of
Original
Equipment
Power-
Sizing
Exponent
$3500 0.80
$250
0.22
$3000 0.6
New
Equipment
Size
75 gal
1.5 hp
12 ft³
Original
Cost Index
154
780
49
Cost Index
Today
171
900
76

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