Question

In 2009, the Office of the Under Secretary of Defense projected that a critical International Defense Construction Cost Index would increase from its value then of 3423 to 4098 in 2016. If the actual value in 2016 was 5167, (a) what was the actual building cost inflation rate between 2009 and 2016, and (b) what was the increase in the inflation rates between projected and actual?

Solution

Verified
Answered 2 years ago
Answered 2 years ago
Step 1
1 of 2

(a) It is important to note that we need to find the actual inflation rate in a 7-year period, not the annual inflation (inflation over 7 1-year periods).

We know that C2016=C2009(I2016I2009)C_{2016} = C_{2009} \cdot \bigg( \frac{I_{2016}}{I_{2009}} \bigg).

C2016a=C2009(1+fa)fa=C2016aC20091=I2016aI20091=516734231=0.5095=50.95%\begin{align*} C_{2016a} &= C_{2009} \cdot (1 + f_a)\\ f_a &= \frac{C_{2016a}}{C_{2009}} - 1\\ &= \frac{I_{2016a}}{I_{2009}} -1\\ &= \frac{5167}{3423} - 1\\ &= 0.5095 = 50.95\% \end{align*}

(b)

fp=I2016pI20091=409834231=0.1972=19.72%Δf=fafp=32.23%\begin{align*} f_p &= \frac{I_{2016p}}{I_{2009}} -1\\ &= \frac{4098}{3423} - 1\\ &= 0.1972 = 19.72\%\\\\ \Delta{f} &= f_a - f_p\\ &= 32.23\% \end{align*}

The actual inflation increased by 32.23%.

Create an account to view solutions

Create an account to view solutions

Recommended textbook solutions

Engineering Economy 7th Edition by Anthony Tarquin, Leland Blank

Engineering Economy

7th EditionISBN: 9780073376301 (3 more)Anthony Tarquin, Leland Blank
1,116 solutions
Engineering Economy 8th Edition by Anthony Tarquin, Leland Blank

Engineering Economy

8th EditionISBN: 9780073523439 (6 more)Anthony Tarquin, Leland Blank
1,233 solutions
Fundamentals of Engineering Economics 3rd Edition by Gerald Thuesen, G Thuesen, Walter Fabrycky

Fundamentals of Engineering Economics

3rd EditionISBN: 9780132775427Gerald Thuesen, G Thuesen, Walter Fabrycky
563 solutions
Engineering Economic Analysis 13th Edition by Donald G. Newnan, Jerome P. Lavelle, Ted G. Eschenbach

Engineering Economic Analysis

13th EditionISBN: 9780190296902Donald G. Newnan, Jerome P. Lavelle, Ted G. Eschenbach
907 solutions

More related questions

1/4

1/7