To estimate the cost of the same facility after 14 years we can use this formula: Cost X (1+I), where I is inflation rate and n = number of years. By plugging in the required numbers into equation, we get Cost X (1+ 0.A%)14. This translates to Cost X 2,4244.
This means that according to our calculations , building same manufacturing facility fourteen years down line would require approximately 2.4244 times more money than what it currently costs i.e if today’s price tag for such project was SUN Euros then total amount spent on it after 14 years would be approximately 2424400 Euros .
Acme must plan for the future. Failure to do this may lead to overspending, or putting off projects because of lack of resources. Both will make Acme less competitive in their industry against other competitors.
Estimating future costs using current prices and inflation expectations can help organizations develop strategies that are more appropriate for their budgeting needs. They will then be able to make informed decisions regarding capital spending in the coming years.