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Cost ApproachHARD13.6% of exam

Reproduction cost is $420,000 and replacement cost is $365,000. Using replacement cost, with accrued depreciation of $73,000 and a site valued at $110,000, what value does the cost approach indicate?

Correct Answer

B) $402,000

Why this is correct: the depreciation given was measured against replacement cost, so replacement cost is the figure it comes off. Calculation: $365,000 - $73,000 + $110,000 = $402,000. Why the other choices are wrong: $457,000 uses reproduction cost, which carries superadequacies that the depreciation figure never accounted for; $292,000 omits the site; $512,000 omits the depreciation.

Answer Options
A
$457,000
B
$402,000
C
$512,000
D
$292,000

Why This Is the Correct Answer

Why this is correct: the depreciation given was measured against replacement cost, so replacement cost is the figure it comes off. Calculation: $365,000 - $73,000 + $110,000 = $402,000. Why the other choices are wrong: $457,000 uses reproduction cost, which carries superadequacies that the depreciation figure never accounted for; $292,000 omits the site; $512,000 omits the depreciation.

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