Question 83

The value of the property using the cost approach is $360,000.

To calculate the value of the property using the cost approach, we consider the reproduction cost of the house, which is $350,000, and add the value of the land, which is $80,000. Therefore, the total value equals $350,000 + $80,000, resulting in $430,000. However, since the property has depreciated over 10 years, we need to subtract the accumulated depreciation, calculated as follows: (Reproduction cost / Total useful life) * Age of the property = ($350,000 / 50) * 10 = $70,000. Thus, the adjusted value is $430,000 - $70,000 = $360,000.

A) $280,000

This option is incorrect because it does not account for the full value of the reproduction cost and the land value. The calculations show that the total property value, after considering depreciation, exceeds this amount, making $280,000 an inadequate estimate.

B) $499,000

This choice is also incorrect. It overestimates the property value by failing to properly apply the cost approach calculations, especially in terms of depreciation. The value derived from the reproduction cost and land value does not support this figure.

C) $360,000

This is the correct answer. It accurately reflects the total value of the property by taking into account the reproduction cost of $350,000, the land value of $80,000, and the depreciation calculated for 10 years, leading to a final value of $360,000.

D) $170,500

This option is incorrect as it significantly underestimates the property value. The calculations clearly show that both the reproduction cost and the land value exceed this amount, and the depreciation does not account for such a low valuation.

Conclusion

The correct value of the property using the cost approach is $360,000, as it accurately incorporates the reproduction cost, the land value, and the appropriate depreciation for the age of the house. All other options fail to capture the true value of the property based on these essential components.