Solution:
Let the size of old plant be x
New plant is 33% bigger than the old plant.
So,
Size of the new plant [tex]=x+(0.33 * x)[/tex]
= x + 0.33x = 1.33x
Cost of the old plant = $8 million
Capacity exponent = 0.90
Calculate the cost of new plant -
Cost of new plant = Cost of old plant * (Size of new plant/Size of old plant)capacity exponent
Cost of new plant =[tex]=\$ 8 \text { million } *(1.33 \mathrm{x} / \mathrm{x})^{0.90}[/tex]
Cost of new plant =[tex]\text { S8 million } *(1.33)^{0.90}[/tex] = $10.34 million
Thus,
The cost of building new plant is $10.34 million.
