Question 18 (5 points) The cost approach to valuation assumes the market value of a new building is similar to the cost of constructing it today. Which of the following terms refers to the expenditure required to construct a building of equal utility using modern construction techniques, materials, and design that eliminates outdated aspects of the structure? Replacement cost Fixed cost Variable cost Reproduction cost
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The property you are asked to appraise is a ten-year-old, one-story, single-family dwelling with 1,900 square feet of living area. Given the following data, estimate reproduction cost, cost per square foot of living area, accrued depreciation, and total property value using the cost approach. Cost data: Direct costs (including labor, materials, equipment, and subcontractors' fees): $98,500 Indirect costs (including profit and overhead, architect's fees, survey, legal fees, permits, licenses, insurance, taxes, financing charges, and selling expenses): $26,500 Depreciation data: Physical deterioration Curable physical deterioration (deferred maintenance): $5,250 Incurable physical deterioration-short-lived items: $12,250 Incurable physical deterioration-long-lived items: Observed effective age (after curing physical curable and physical incurable short-lived items and curable functional obsolescence): 5 years Estimated economic life expectancy: 50 years Functional obsolescence Curable functional obsolescence: none Incurable functional obsolescence: none External obsolescence (location too close to highway; estimated by the sales comparison method): $9,000 Site value Estimated value of site by sales comparison approach: $40,000
Akash M.
The City of Waltham wants to obtain the value of its 99 year old Historic City Hall property. Your firm has been engaged to provide an estimate of value. You will use the Cost Approach to determine value. You will be required to estimate reproduction or replacement cost new (specify which is appropriate and why) and proceed through the steps of the Cost Approach to complete the task: Cost Estimates (000 omitted): Cost of new construction: $153,000; Since the last renovation 30 years ago, physical deterioration: $22,000; functional obsolescence: $6,000; external obsolescence: $2,000; four (4) comparable land values have been identified for the valuation estimate: $49,000; $35,000; $40,000; $52,000.
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Horngren’s Cost Accounting
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Principles of Accounting Volume 1: Financial Accounting
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