A proposed project is expected to sell 24 units per year. The competitive market segment, including the project's projected sales, absorbs 120 units per year. What is the project's market capture rate?
Correct Answer
B) 0.20
Capture = 24 project sales/year / 120 competitive-segment sales/year = 0.20. Keep the stated numerator, denominator and units distinct. Common errors: inverting the ratio (segment ÷ project) gives 5.00; adding the project sales to a segment total that already includes them gives 0.17; reporting the complement instead of the capture rate gives 0.80.
Why This Is the Correct Answer
Option B is correct because capture = 24 project sales per year / 120 segment sales per year = 0.20. The project is expected to capture one fifth of the segment's annual absorption.
Why the Other Options Are Wrong
Option A: 0.17
Option A, 0.17, comes from adding the project's sales to a segment total that already includes them: 24 / (120 + 24) = 0.167, about 0.17. The stated 120 already includes the project, so the capture is 24 / 120 = 0.20.
Option C: 0.80
Option C, 0.80, is the complement rather than the capture rate: (120 - 24) / 120 = 0.80, the share going to competitors. The project's capture is 24 / 120 = 0.20.
Option D: 5.00
Option D, 5.00, inverts the ratio: 120 / 24 = 5.00. Capture rate puts the project's sales on top: 24 / 120 = 0.20.
Part over whole
Capture rate is the project's part over the segment's whole, so it should fall between 0 and 1.
How to use: Use this check to rule out inverted ratios greater than 1.
Exam Tip
Read whether the segment total includes the project; if it does, do not add the project's sales again.
Common Mistakes to Avoid
- -Inverting the ratio
- -Double counting the project's sales in the denominator
- -Reporting the competitors' share instead of the project's share
Concept Deep Dive
Analysis
This question tests calculating a market capture rate. Capture rate is the project's expected annual sales divided by the competitive segment's annual absorption. The question states the segment total already includes the project's sales, so no adjustment to the denominator is needed.
Background Knowledge
Capture rate shows what share of the market's demand a subject or project must win to meet its projected sales. A capture rate that is high relative to the project's competitive position may signal that projected sales are optimistic. It is used in feasibility and market studies for new developments.
Real-World Application
Reviewing a proposed townhouse project, an appraiser finds the developer expects 24 sales a year in a segment that absorbs 120. A 20% capture rate lets her judge whether that sales pace is realistic against competing projects.
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