AAEC 4303
HOMEWORK - COST APPROACH
Due Tuesday, October 23, 2012.
1.
The subject property has an equipment shed that is 40'*60'. The replacement cost is
estimated to be $40 per square foot. The effective age is 25 years with a remaining
economic life of 20 years. Curable physical deterioration is $7,000. At present the
shed does not have a door large enough to accommodate modern equipment. A larger
door was included in the replacement cost; however, it would cost an additional $3,500 to
install the door in the present shed. Therefore, curable functional obsolescence is
$3,500.
a)
Determine the total accrued depreciation.
b)
Determine the contributory value of the shed.
RCN = 40’ * 60’ = 2400 sq ft * $40 = $96,000
Effective age = 25 yrs
Remaining life = 20 yrs
Total Eco live = 45 yrs
Age/Life Ratio = 25/45 = 0.5556
Curable Physical Deterioration = $7,000
Incurable Physical Deterioration = 96,000 – 7,000 = 89,000 * 0.5556 = $49,448
Curable Functional Obsl.
Accrued Depreciation
Contributory Value
RCN =
Curable Phy.
= $3,500
= 7,000 + 49,448 + 3,500 = $59,948
= 96,000 – 59,948 = 36,052
96,000
-7,000
89,000
Incurable Phy
-49,448
39,552
Curable Funct. Obsl. -3,500
Contributory Value 36,052
2.
The subject property is a 1600 square foot residence with a replacement cost of $95.00
per square foot.
Curable physical deterioration for interior repairs is:
Incurable physical deterioration for short-lived items:
Cost to Cure
Roof
Exterior Paint
Interior Paint
Exterior Repairs
$10,500
3,500
4,500
2,500
21,000
$8,500.
Age
Life
Depreciation
7
8
6
4
20
10
10
10
3,675
2,800
2,700
1,000
10,175
Incurable physical deterioration for long-lived items is based on an effective age of 30 years and
an estimated remaining economic life of 20 years.
No functional obsolescence is observed.
External obsolescence is estimated at 10% of the net value after physical deterioration.
The lot (land) value of the property is estimated to be $10,000.
a)
Determine the total accrued depreciation.
b)
Determine the estimated value of the property.
RCN = 1600 * 95.00 = $152,000
Depreciation:
Curable physical deterioration for interior repairs:
$8,500
Incurable physical deterioration for short-lived items:
$10,175
Incurable physical deterioration for long-lived items:
Age/Live ratio 30/50 = 0.60
($152,000 - 8,500 - $21,000 = $122,500 * 0.60) =
Total physical deterioration:
External Obsolescence:
($152,000 - $92,175 = $59,825 * 0.10) =
Total accrued depreciation:
Contributory Value = $152,000 – $98,158 =
Land Value
Property Value
$73,500
$92,175
$ 5,983
$98,158
$53,842
$10,000
$63,842
3.
Given the following comparable sale data, estimate accrued depreciation for the subject
improvements.
Subject:
3000 acres of rangeland with adequate improvements which would cost
$125,000 to build today.
Sale 1 :
2000 acres of rangeland with adequate improvements (comparable to the
subject in value), sold last week for $450,000.
Sale 2 :
2700 acres of rangeland with no improvements, sold last week for
$540,000.
From Sale #2: Land value = $540,000/2700ac = $200/ac
From Sale #1: $450,000 - $400,000 = $50,000 Contributory Value of Improvements
RCN for Subject
= 125,000
CV of Improvements = 50,000
Accrued Depr.
75,000