Problem 16.1 : COST EVALUATION

From Eq.(16.19) which adjusts cost for a size or capacity difference, 

 

a cyclone dust collector. Note that while the new unit has 10 times the capacity as the unit purchased in 1985 will not cost 10X more, because of economy of scale. However, the purchase cost will have increased because of inflation in the 22 years since it was purchased in 1985. Assuming cost inflation in of 5% per year, the original cost of $35,000 is now equivalent to .

The estimate of the cost is 

Note that this estimate does not include the cost of shipping, installation at the plant, and necessary electrical and mechanical auxiliaries. The best estimate of the cost would be a firm quotation from the supplier. A better estimate of the cost escalation from 1985 could be obtained using Eq.(16.18) with the producer price index (PPI) at www.bls.gov for the type of equipment involved, since an estimate of 5% inflation most likely overestimates the actual situation.