Using extraction, three sales of 20-year-old homes show about 20% total depreciation. The implied straight-line annual rate is:
Correct Answer
D) 1.0% per year of age
Why this is correct: The governing concept is converting total depreciation percentage into an annual straight-line rate. If 20-year-old homes show 20% total depreciation, the annual rate is Total Depreciation Percentage divided by Effective Age: 20% / 20 years = 1% per year. Why the other choices are wrong: "0.5% per year of age" is wrong; this would be 20% / 40 years. "2.0% per year of age" is wrong; this would be 20% / 10 years. "4.0% per year of age" is wrong; this would be 20% / 5 years. Exam tip: For straight-line, annual rate = (Total Depreciation %) / (Effective Age). This implies a total economic life of 100 years (100% / 1% per year).
Why This Is the Correct Answer
Why this is correct: The governing concept is converting total depreciation percentage into an annual straight-line rate. If 20-year-old homes show 20% total depreciation, the annual rate is Total Depreciation Percentage divided by Effective Age: 20% / 20 years = 1% per year. Why the other choices are wrong: "0.5% per year of age" is wrong; this would be 20% / 40 years. "2.0% per year of age" is wrong; this would be 20% / 10 years. "4.0% per year of age" is wrong; this would be 20% / 5 years. Exam tip: For straight-line, annual rate = (Total Depreciation %) / (Effective Age). This implies a total economic life of 100 years (100% / 1% per year).
More Cost Approach Questions
In a cost approach for a proposed building, the appropriate cost basis is generally:
A warehouse cost $210,000 to build when the cost index stood at 105. The index is now 210. Its indicated current cost is:
The age-life method expresses depreciation as:
Market extraction of depreciation is limited by the fact that it:
Functional obsolescence caused by a deficiency is measured as curable when:
Curable physical deterioration is measured at cost to cure because:
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A house has three bedrooms sharing one bathroom, and adding a second bath is economically justified. This is:
Direct costs in a construction budget include:
An appraiser writes that a 40-year-old house has an effective age of 10 but describes original wiring, original kitchen and a 25-year-old roof. The report's problem is:
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