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Cost ApproachHARD13.6% of exam

After curable items are removed, the long-lived components have a cost new of $240,000. The effective age is 12 years against a total economic life of 60 years. What is the incurable physical deterioration?

Correct Answer

A) $48,000

Why this is correct: the age-life ratio is applied to the cost of the components that remain. Calculation: 12 / 60 x $240,000 = $48,000. Why the other choices are wrong: $60,000 uses 25%, which is a 15-year effective age rather than the 12 given; $192,000 is the undepreciated remainder; $20,000 divides the cost by the effective age, which is not a ratio of life consumed.

Answer Options
A
$48,000
B
$192,000
C
$20,000
D
$60,000

Why This Is the Correct Answer

Why this is correct: the age-life ratio is applied to the cost of the components that remain. Calculation: 12 / 60 x $240,000 = $48,000. Why the other choices are wrong: $60,000 uses 25%, which is a 15-year effective age rather than the 12 given; $192,000 is the undepreciated remainder; $20,000 divides the cost by the effective age, which is not a ratio of life consumed.

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