In 2002 Acme Chemical purchased a large pump for
$112,000. Acme keys their cost estimating for these
pumps to the industrial pump index, with a baseline of
100 established in 1992. The index in 2002 was 212.
Acme is now (2010) considering construction of a nev
addition and must estimate the cost of the same type
and size of pump. If the industrial pump index is
currently 286, what is the estimated cost of the new
pump?

$151094

Explanation:

Solution

Recall that:

Acme Chemical in 2002 purchased a large pump worth of = 112,000

The estimation for the pump to the industrial pump index is =100

The index in 2002= 212

The current index is = 286

k = is the  reference year for which cost or price is known.

n =  the year for which cost or price is to be estimated (n>k).

Cn = the estimated cost or price of item in year n.

Ck =  the cost or price of item in reference year k.

Cn = Ck * (In / Ik )

Now,

We find the estimated cost of the new pump which is stated as follows:

Cn = (112,000 * 286) /212

=32032000/212

=$151094

Therefore, the estimated cost of the new pump is $151094

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