Question

Your college purchased a building east of campus for $500,000. Given changes in the city's real estate market, the current market value of the building is now $2 million. The total value of the use of the building for the college is estimated to be $1.5 million. What should your college do? Explain why.

a. Not use the building. It would be a loss of $2 million.
b. Use the building. The gain would be $1.5 million.
c. Not use the building. Using the building would mean losing $ .5 million in doing so.
d. Use the building. They only paid $500,000. It's value is $1.5 million. They gain $1 million.

Answer 1

The college should use the building as it would gain $1.5 million in value. The college should use the building since the value of its use is estimated at $1.5 million, which signifies the benefit the college would gain.

Step-by-step explanation:

Given the information provided, the college should use the building. The current market value of the building is $2 million, which is higher than the purchase price of $500,000. Additionally, the estimated value of the use of the building for the college is $1.5 million. Therefore, by using the building, the college would gain $1.5 million in value.

The college should use the building since the value of its use is estimated at $1.5 million, which signifies the benefit the college would gain. The decision should not be based solely on the increased market value ($2 million) as the utility may outweigh the cash value if the building is integral to the college's operations.

In evaluating the decision your college should make regarding the building, it's important to consider both the market value of the property and its utility to the college. The question states that the current market value of the building is $2 million, and the value of its use for the college is estimated to be $1.5 million. The decision should not solely be based on the property's increased market value but also on the usefulness and potential benefit that the college can derive from it.

Choosing to use the building would provide a gain of $1.5 million in utility to the college. This is because this value represents the benefit the college estimates to get from utilizing the building for its needs. Although the market value is higher at $2 million, selling the building would only be a better option if the college can find a better use of that $2 million that exceeds the $1.5 million utility value or if the college has no use for the building and needs the cash.

Thus, if the college has a use for the building, and especially if that use is integral to the college's operations, the better option would be to use the building. This would not be losing money but capitalizing on the property's value in a way that directly benefits the college's goals and missions. Here, monetary value in terms of market price does not equal the full utility value for the college.