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Cost ApproachMEDIUM13.6% of exam

Cost new of the improvements is $310,000 and they have depreciated 20%. The site is valued at $88,000. What value does the cost approach indicate?

Correct Answer

B) $336,000

Why this is correct: the 20% applies to the improvements only. Calculation: $310,000 x 0.80 = $248,000; $248,000 + $88,000 = $336,000. Why the other choices are wrong: $318,400 depreciates the site along with the building, which treats land as though it wore out; $248,000 omits the site; $460,000 adds the depreciation to both figures instead of deducting it.

Answer Options
A
$318,400
B
$336,000
C
$460,000
D
$248,000

Why This Is the Correct Answer

Why this is correct: the 20% applies to the improvements only. Calculation: $310,000 x 0.80 = $248,000; $248,000 + $88,000 = $336,000. Why the other choices are wrong: $318,400 depreciates the site along with the building, which treats land as though it wore out; $248,000 omits the site; $460,000 adds the depreciation to both figures instead of deducting it.

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