An investor is considering the purchase of an existing suburban office building approximately five years old. The building, when constructed, was estimated to have an economic life of 50 years, and the building-to-value ratio was 80 percent. Based on current cost estimates, the structure would cost $5 million to reproduce today. The building is expected to continue to wear out evenly over the 50-year period of its economic life. Estimates of other economic costs associated with the improvement are as follows: Repairable physical depreciation Functional obsolescence (repairable) Functional obsolescence (nonrepairable) $ 348,000 to repair $ 232,000 to repair $ 29,000 per year rent loss The land value has been established at $1 million by comparable sales in the area. The investor believes that an appropriate opportunity cost for any deferred outlays or costs should be 12 percent per year. Required: What would be the estimated value for this property? (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.) Answer is complete but not entirely correct. Estimated value 5 5,643,448
An investor is considering the purchase of an existing suburban office building approximately five years old. The building, when constructed, was estimated to have an economic life of 50 years, and the building-to-value ratio was 80 percent. Based on current cost estimates, the structure would cost $5 million to reproduce today. The building is expected to continue to wear out evenly over the 50-year period of its economic life. Estimates of other economic costs associated with the improvement are as follows: Repairable physical depreciation Functional obsolescence (repairable) Functional obsolescence (nonrepairable) $ 348,000 to repair $ 232,000 to repair $ 29,000 per year rent loss The land value has been established at $1 million by comparable sales in the area. The investor believes that an appropriate opportunity cost for any deferred outlays or costs should be 12 percent per year. Required: What would be the estimated value for this property? (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.) Answer is complete but not entirely correct. Estimated value 5 5,643,448
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:An investor is considering the purchase of an existing suburban office building approximately five years old. The building, when
constructed, was estimated to have an economic life of 50 years, and the building-to-value ratio was 80 percent. Based on current
cost estimates, the structure would cost $5 million to reproduce today. The building is expected to continue to wear out evenly over
the 50-year period of its economic life. Estimates of other economic costs associated with the improvement are as follows:
Repairable physical depreciation
Functional obsolescence (repairable)
Functional obsolescence (nonrepairable)
$ 348,000 to repair
$ 232,000 to repair
$ 29,000 per year rent loss
The land value has been established at $1 million by comparable sales in the area. The investor believes that an appropriate
opportunity cost for any deferred outlays or costs should be 12 percent per year.
Required:
What would be the estimated value for this property? (Do not round intermediate calculations. Round your final answer to the
nearest dollar amount.)
Answer is complete but not entirely correct.
Estimated value
$ 5,643,448
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