A single-family home was developed five years ago in Neighborhood X and the owner would like to estimate the value of the property. Due to the lack of comparables in the local market, the owner relies on the cost approach for valuation. Based on the information below, what is the estimated value of the property based on the cost approach? (choose the closest answer) • The living area costs $300,000 to replace as new (material cost and labor cost) . Cost of garage and patio adds up to $50,000 Physical depreciation is 10 percent of the replacement cost . There is no functional or external obsolescence . The land value is $200,000 and site improvement is worth 50,000 . 350,000 540,000 565,000 600,000

A single-family home was developed five years ago in Neighborhood X and the owner would like to estimate the value of the property. Due to the lack of comparables in the local market, the owner relies on the cost approach for valuation. Based on the information below, what is the estimated value of the property based on the cost approach? (choose the closest answer) • The living area costs $300,000 to replace as new (material cost and labor cost) . Cost of garage and patio adds up to $50,000 Physical depreciation is 10 percent of the replacement cost . There is no functional or external obsolescence . The land value is $200,000 and site improvement is worth 50,000 . 350,000 540,000 565,000 600,000

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter17: Business Tax Credits And The Alternative Minimum Tax

Section: Chapter Questions

Problem 13P

See similar textbooks

Similar questions

Ken Owens Construction specializes in small additions and repairs. His normal charge is $400/day plus materials. Due to his physical condition, David, an elderly gentleman, needs a downstairs room converted to a bathroom. Ken has produced a bid for $5000 to complete the bathroom. He did not provide David with the details of the bid. However, they are shown here. The towns social services has asked Ken if he could reduce his bid to $4000. Should Ken accept the counter offer? B. How much would his income be reduced? C. If the towns social services guaranteed him another job next month at his normal price, could he accept this job at $4000?
Alexander Industries is considering purchasing an insurance policy for its new office building in St. Louis, Missouri. The policy has an annual cost of $10,000. If Alexander Industries doesn’t purchase the insurance and minor fire damage occurs, a cost of $100,000 is anticipated; the cost if major or total destruction occurs is $200,000. The costs, including the state-of-nature probabilities, are as follows: Using the expected value approach, what decision do you recommend? What lottery would you use to assess utilities? (Note: Because the data are costs, the best payoff is $0.) Assume that you found the following indifference probabilities for the lottery defined in part (b). What decision would you recommend? Do you favor using expected value or expected utility for this decision problem? Why?
Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land 12 years ago for $3,776,276 in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $3,278,390. An engineer was hired to study the land at a cost of $748,629, and her conclusion was that the land can support the new manufacturing facility. The company wants to build its new manufacturing plant on this land; the plant will cost $5,555,713 million to build, and the site requires $1,384,583 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?
Clearer Designs has a printing press sitting idly in its back room. The press has cannot be sold to another printer because the machine utilizes old technology. The firm could get $250 for the press as scrap metal. The press is six years old and originally cost $148,000. The current book value is $2,570. The president of the firm is considering a new project and feels he can use this press for that project. What value, if any, should be assigned to the press as an initial cost of the new project? a) $0 b) $250 c) $2,245 d) $2,570
Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land 5 years ago for $7,385,474 in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $3,944,875. An engineer was hired to study the land at a cost of $617,920, and her conclusion was that the land can support the new manufacturing facility. The company wants to build its new manufacturing plant on this land; the plant will cost $5,838,309 to build, and the site requires $994,648 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?
Suppose that you are asked to derive the depreciation rate for a house on rural property. The contributory value of the house is $50,000, the replacement cost is estimated to be $80,000, and its effective age is 10 years. Calculate the annual percentage depreciation for this house. 3% 3.75% 4% 4.75%
Valley Pizza’s owner bought his current pizza oven two years ago for $9,000, and it has one more year of life remaining. He is using straight-line depreciation for the oven. He could purchase a new oven for $1,900, but it would last only one year. The owner figures the new oven would save him $2,600 in annual operating expenses compared to operating the old one. Consequently, he has decided against buying the new oven, since doing so would result in a “loss” of $400 over the next year. Required:1. How do you suppose the owner came up with $400 as the loss for the next year if the new pizza oven were purchased? Explain.2. Criticize the owner’s analysis and decision.3. Prepare a correct analysis of the owner’s decision.
The council members of a small town have decided that the earth levee that protects the town from flooding should be rebuilt and strengthened. The town engineer estimates that the cost of the work at the end of the first year will be $68,000. He estimates that in subsequent years the annual repair costs will decline by $7000, making the second-year cost $61,000; the third-year $54,000, and so forth. The council members want to know what the equivalent present cost is for the first 5 years of repair work if interest is 6%.
Engr. Diamse is considering the purchase of a generating set to supply the electrical needs of his office during power interruptions. The first offer he received is for a gasoline driven unit with an estimated life span of 5 years and would cost him 52,000. The annual maintenance cost is estimated to be 8,300, annual operating cost would be 27,600 and salvage value would be 7,200. The second offer is for a diesel engine driven unit with an estimated life span of 10 years, annual maintenance cost of 5,800, operating yearly cost of 18,800 and salvage value of 11,900. The price offered for the unit is 98,250. If Engr. Diamse would need the services of a generator for 10 years, which of the two offers would be better to accept if cost of money is 20%. Compute on annual cost basis
In a company’s renovation of a small office building, two feasible alternatives for upgrading the heating, ventilation, and air conditioning (HVAC) system have been identified. Either Alternative A or Alternative B must be implemented. The costs are as shown follows (atatched): At the end of eight years, the estimated market value for Alternative A is $2,000and for Alternative B it is $8,000. Assume that both alternatives will providecomparable service (comfort) over an eight-year period, and assume that the major component replaced in Alternative B will have no market value at EOY eight. (1) Use a cash-flow table and end-of-year convention to tabulate the net cash flows for both alternatives. (2) Determine the annual net cash-flow difference between the alternatives (B − A).
Mom’s Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $38,000; it is now five years old, and it has a current market value of $16,500. The old oven is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $19,000 and an annual depreciation expense of $3,800. The old oven can be used for six more years but has no market value after its depreciable life is over. Management is contemplating the purchase of a new oven whose cost is $27,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new oven are $4,200 a year over its life, you can use bonus depreciation on the oven, and the cost of capital is 10 percent. Assume a 21 percent tax rate.What will the cash flows for this project be? (Note that the $38,000 cost of the old oven is depreciated over ten years at $3,800 per year. The half-year convention is not used for…
Mom’s Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $45,000; it is now five years old, and it has a current market value of $20,000. The old oven is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $22,500 and an annual depreciation expense of $4,500. The old oven can be used for six more years but has no market value after its depreciable life is over. Management is contemplating the purchase of a new oven whose cost is $25,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new oven are $3,400 a year over its life, you can use bonus depreciation on the oven, and the cost of capital is 10 percent. Assume a 21 percent tax rate.What will the cash flows for this project be? (Note that the $45,000 cost of the old oven is depreciated over ten years at $4,500 per year. The half-year convention is not used for…