A retail pottery store that produces its own products on the premises needs a co

Question

A retail pottery store that produces its own products on the premises needs a cost estimate for opening up a second store. You will be paid $1000 for professional services to generate the cost estimate. The original store building, which was set up three years ago, is 1,200 square feet of floor. The new store building is proposed to be double the size of original store. Three years ago floor space sold for $75 per square foot. The cost index for floor space three years ago was 163. The cost index today for floor space is now 180. The main piece of equipment in pottery production is the kiln. The old store used a kiln with 30 cubic feet capacity purchased 3 years ago for $2,500. The kiln for the new store is proposed to be 50 cubic feet capacity. The cost index for kilns was 108 three years ago and is 121 today. The power sizing exponent for kiln capacity is 0.72. First organize the given information into a table of data. Then show calculations in clearly defined analysis steps, first writing the theoretical equations used in each analysis step to answer the question, then substitute in given data, and then solve. In other words, show all work and steps and clearly identify and label all variables in your solution.

Calculate the estimated total cost today of a new store with the desired increased size of floor space and a new larger kiln.

You deliver the cost estimate on the first day of a month and the business accepts your cost estimate, pays you your fee of $1,000, and immediately goes ahead with the plan, buying the equipment and new store building through a one year business loan the same day which has an annual interest rate of 6% compounded quarterly, and payments are to be made at the end of each month for a year, with the first payment starting the end of this month. What is the periodic loan payment amount that the company will have to make?

Show all calculations for the correct effective interest rate you use in your solution that follows. Identify and label all parameters used to calculate the interest rate.

Explanation / Answer

Floor rate caluclation for new store

new rate/old rate*100=cost index for floor space of new store

newrate/75*100=180

New rate = 135

Floor space cost = 2400*135 = 324000

Klin cost caluclation

( 50 cubic meter / 30 cubic meter)^power sizing exponent*Cost paid for old Klin

(50/30)^0.72*2500*2500

1.44*2500

3600

Total Cost estimate

Floor space cost =324000

Klin cost =3600

Total = 327600

Professional feess = 1000

Loan amount =328600

Effective interest rate caluclation

(1+ R/compounding cycle)^no:of compoundings -1

(1+0.06/4)^4-1 = 6.14%

EMI caluclation

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

P= loan amount =328600

R= interest rate per month(=6.14/(12*100) = 0.005116

N=No of monthly instalments = 12

Substituting in the above formulae we get

=(328600*0.005116*(1+0.005116)^12)/(1+0.005116)^12-1

EMI = $28302 approx per Month

Particulars Old store New store Floor space 1200 2400 Cost index for floor space 163 180 Kiln capacity in cubic meter 30 50 Cost index for Kiln 108 121 Power sizing equipment 0.72 0.72

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