A building has a depreciation rate of 10%. The reproduction cost is $250,000 and the land value is $50,000. Using the cost approach, what is the value of the building?

Rationale

$190,000 is the value of the building using the cost approach.

To determine the value of the building using the cost approach, we start with the reproduction cost of $250,000, apply the depreciation rate of 10%, and then subtract the land value of $50,000. The calculation yields a value of $190,000 for the building.

A ($310,000) YOUR ANSWER

This amount incorrectly adds the land value to the full reproduction cost without accounting for depreciation. The correct approach requires deducting the depreciation from the reproduction cost before considering the land value, which leads to a lower building value.

B ($275,000) YOUR ANSWER

This value reflects an incorrect application of depreciation. To find the building's value, one must first calculate the depreciation on the reproduction cost of $250,000, which results in a lower figure than $275,000 after applying the 10% depreciation.

C ($285,000) YOUR ANSWER

This choice fails to correctly apply the depreciation rate. The calculation should first deduct the 10% depreciation from the reproduction cost, resulting in a value lower than $285,000 after considering the land value.

D ($190,000) CORRECT

This value accurately reflects the application of the cost approach. The building's value is calculated by taking the reproduction cost of $250,000, applying the 10% depreciation to arrive at $225,000, and then subtracting the land value of $50,000.

Conclusion

The cost approach to valuing a building requires careful consideration of reproduction costs, depreciation, and land value. By correctly applying a 10% depreciation to the reproduction cost of $250,000 and subtracting the land value of $50,000, we arrive at the accurate building value of $190,000. This method ensures a fair representation of the building's worth in relation to market conditions.

A building has a depreciation rate of 10%. The reproduction cost is $250,000 and the land value is $50,000. Using the cost approach, what is the value of the building?

$190,000 is the value of the building using the cost approach.

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