A Cost Index (or Price Index) is used in construction project finance to:
Choose the correct answer
Estimate the number of workers required
Convert the cost of a project from a past reference year to current prices (accounting for inflation/price escalation of materials and labour)
Calculate the net present value only
Determine the quality of materials
Correct Answer
B. Convert the cost of a project from a past reference year to current prices (accounting for inflation/price escalation of materials and labour)
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Cost index: if a building cost Rs. 50 lakh in 2015 (CI=100) and CI is 150 in 2023, current cost = 50 x 150/100 = Rs. 75 lakh. CPWD Composite Construction Cost Index, ENR (Engineering News Record) index. Used for updating preliminary estimates, contingency planning, and escalation provisions in long-duration contracts.
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