A half-million-square-foot warehouse facility is being considered by your compan

Question

A half-million-square-foot warehouse facility is being considered by your company for a location in Kansas City, KS. You have a bid for a similar typo 25,000 ft^2 facility in Washington, DC, at exist4,375,000. If the warehouse construction cost index value for KS is 0.75 and for DC it is 1.34, what range should the KS bid fail into if you assume that construction costs are linear across size? A) Less than exist30 million B) Between exist30 million and exist60 million C) Between exist60 million and exist100 million D) Greater than exist100 million

Explanation / Answer

Solution:

(a) Bid for similar type property in Washington DC is for 25,000 square foot facility = $4,375,000 and the warehouse construction cost intdex is 1.34

(b) Half a million square foot Warehouse facility being considered by the company in Kansas City. Cost Index value for Kansas City is 0.75. While it is 1.34 in Washington DC.
Since , we asume that construction cost are linear size.
So, cost of 25,000 square foot facility in Kansas city can be
derived as = (4,375,000 / 1.34)*0.75 = $2,448,694
Since construction cost are asumed to be linear size.
So Half a million square foot warehouse in Kansas City can be = (50,000/25,000)*2,448,694 = $4,897,388

Option B is correct: Between $30 million and $60 million

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