## Related questions with answers

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(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 $C_{2016} = C_{2009} \cdot \bigg( \frac{I_{2016}}{I_{2009}} \bigg)$.

$\begin{align*} C_{2016a} &= C_{2009} \cdot (1 + f_a)\\ f_a &= \frac{C_{2016a}}{C_{2009}} - 1\\ &= \frac{I_{2016a}}{I_{2009}} -1\\ &= \frac{5167}{3423} - 1\\ &= 0.5095 = 50.95\% \end{align*}$

(b)

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

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•ISBN: 9780073376301 (3 more)Anthony Tarquin, Leland Blank#### Engineering Economy

8th Edition•ISBN: 9780073523439 (6 more)Anthony Tarquin, Leland Blank#### Fundamentals of Engineering Economics

3rd Edition•ISBN: 9780132775427Gerald Thuesen, G Thuesen, Walter Fabrycky#### Engineering Economic Analysis

13th Edition•ISBN: 9780190296902Donald G. Newnan, Jerome P. Lavelle, Ted G. Eschenbach## More related questions

1/4

1/7