Question

The subject building was reported to cost $4,560,000 when it was built 11 years ago. The comparative multiplier for the subject’s area in the year of construction was 1.5656. Determine the cost estimate as of today using cost index trending and straight-line calculations.

a) $2,912,500
b) $4,560,000
c) $5,039,500
d) $7,139,000

Answer 1

b) $4,560,000

Explanation:

To calculate the cost estimate using cost index trending and straight line calculation, we use the following formula

Depreciation = (A- R)÷ L

And we are given the following values as;

Original cost of asset = $4,560,00

Residual asset = $0

Estimated useful life = 11years

Substituting the values into the formula we have

= $(4,560,000 - 0)/11

= $4,560,000/11

= $456,000