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Cost ApproachMEDIUM13.6% of exam

Direct and indirect costs total $340,000 and entrepreneurial incentive in this market is 12% of those costs. What is the total cost new?

Correct Answer

C) $380,800

Why this is correct: entrepreneurial incentive is what a developer must expect to earn for the project to be built at all, and it is part of cost new. Calculation: $340,000 x 1.12 = $380,800. Why the other choices are wrong: $340,000 omits the incentive; $385,000 follows from neither figure; $40,800 is the incentive alone rather than the total it belongs to.

Answer Options
A
$340,000
B
$385,000
C
$380,800
D
$40,800

Why This Is the Correct Answer

Why this is correct: entrepreneurial incentive is what a developer must expect to earn for the project to be built at all, and it is part of cost new. Calculation: $340,000 x 1.12 = $380,800. Why the other choices are wrong: $340,000 omits the incentive; $385,000 follows from neither figure; $40,800 is the incentive alone rather than the total it belongs to.

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