Question

In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the county restored the courthouse for about $1.7 million. A price index for nonresidential construction was 24 in 1949, 108 in 1987, and 126.5 in 2000. According to these numbers, the hospital cost about
a. $2.1 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars.
b. $2.1 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.
c. $2.6 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars.
d. $2.6 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.

Answer 1

Answer:

d. $2.6 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.

Explanation:

price index is the average of price related to aspecific calss of goods or services in a specific period of time.

Today's Cost of Asset = Base year cost x ( current year price index / Base year price index

In year 2000

Hospital  = $500,000 x 126.5 / 24 = $2,635,417

Courthouse = $1,700,000 x 126.5 / 108 = $1,991,204

Cost of Hospital = 2.6 million

Difference with courthouse = 2,635,417 - 1,991,204 = $644,213

Cost of hospital is more than the Couthouse by $644,21300