Assume you have been hired to appraise a local hospital. Your best estimate of the reproduction (or replacement) cost of the building is $3,700,000. However, upon evaluating the use of land in the local area, you have deemed the value of the site to be worth an additional $800,000. If the building has depreciated by $500,000 over its lifetime and there are no further depreciation losses due to external or functional obsolescence, what is the indicated value of the hospital using the cost approach?
A) $2,400,000
B) $3,700,000
C) $4,000,000
D) $4,500,000

Question

Quizplus · Accepted Answer

To calculate the indicated value of the hospital using the cost approach, we need to subtract the accumulated depreciation from the reproduction cost of the building and add the value of the land.

Indicated Value = Reproduction Cost - Accumulated Depreciation + Land Value
Indicated Value = $3,700,000 - $500,000 + $800,000
Indicated Value = $4,000,000

Therefore, the indicated value of the hospital using the cost approach is $4,000,000, which corresponds to choice C.

Assume You Have Been Hired to Appraise a Local Hospital