You have been asked to prepare a construction cost estimate (to three significan

Question

You have been asked to prepare a construction cost estimate (to three significant digits) for a new 75,000 square-foot medical lab that will be constructed next year in Indianapolis. Your research has turned up the following information An article in a recent issue of Engineering News-Record provided national averages for various sizes of similar facilities that were constructed last year, including o An average cost of $41,000,000.00 for 100,000 square-foot facilities o An average cost of $30,000,000.00 for 70,000 square-foot facilities o An average cost of $27,000,000.00 for 50,000 square-foot facilities A contractor who just completed the construction of a 75,000 square-foot facility in Chicago tells you that the total cost to construct that facility was $39,900,000.00. Based on the information provided by the contractor, you realize that these two facilities are nearly identical A second Engineering News-Record article noted that construction costs have remained relatively flat during the last decade, with increases averaging a modest 1.5% each year According to RS Means, the current total cost index for Indianapolis is 90.3 and for Chicago is 121.1 Your estimate of the construction cost for this new building is $ Show all of your work! Clearly explain and justify any assumptions you are making when preparing this estimate. Attach as many sheets of paper as you believe are necessary to clearly show how you calculated the value on the line above. I can't give partial credit if I can't read it or understand it

Explanation / Answer

(i) Cost Index for Chicago is 121.1

Cost index for Indianapolis is 90.3

Average cost in Indianapolis        = 39,900,000 * 90.3

based on cost index                                        121.1

                                                               

= $ 29,752,023

(ii) Now as per record of national averages, cost of 70000 sq feet is $30,000,000

Proportionate cost for 75000 sq. feet would be = (30000000/70000 * 75000)

                                                                                                = $32,142,857

Now each year this cost increases by average 1.5%

Hence, average cost of last year would increase by 1.5% in current year:

So,

Average cost of construction increased by 1.5% would be:

                               

                                                                = 32142857 + (32142857 * 1.5%)

                                                                = $ 32,625,000

Now out of two estimates I shall chose the one with higher amount considering prudence policy

So, as per my calculation, construction cost estimate for construction of 75000 sq. feet medical lab would be $ 32,625,000

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