EstatePass
Cost ApproachHARD13.6% of exam

Total cost new including entrepreneurial incentive is $352,000. Physical deterioration is $44,000, functional obsolescence is $12,000 and external obsolescence is $9,000. The site is valued at $120,000. What value does the cost approach indicate?

Correct Answer

C) $407,000

Why this is correct: all three forms of depreciation come off cost new before the site is added. Calculation: $352,000 - ($44,000 + $12,000 + $9,000) + $120,000 = $352,000 - $65,000 + $120,000 = $407,000. Why the other choices are wrong: $416,000 omits the external obsolescence, which is the form most often forgotten because it originates off the property; $472,000 adds the depreciation; $287,000 omits the site.

Answer Options
A
$416,000
B
$472,000
C
$407,000
D
$287,000

Why This Is the Correct Answer

Why this is correct: all three forms of depreciation come off cost new before the site is added. Calculation: $352,000 - ($44,000 + $12,000 + $9,000) + $120,000 = $352,000 - $65,000 + $120,000 = $407,000. Why the other choices are wrong: $416,000 omits the external obsolescence, which is the form most often forgotten because it originates off the property; $472,000 adds the depreciation; $287,000 omits the site.

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