### CFA Practice Question

There are 195 practice questions for this study session.

### CFA Practice Question

The building for a small neighborhood retail center would cost \$1,500,000 to replace. This building has an effective age of 15 years, and a total economic life of 50 years. The land on which it lies has a value of \$250,000.

The only major short-lived components in the building are carpeting and fixtures. The replacement cost of these items is \$400,000, and they currently have 25% of their useful life remaining.

The property has no functional or external obsolescence.

What is the value of the property as indicated by the cost approach?
A. \$1,080,000.
B. \$1,120,000.
C. \$1,220,000.
Explanation: The total short-lived physical deterioration for this building: = \$400,000 x (1 - 0.25) = \$300,000.

The total long-lived physical deterioration for this building: (\$1,500,000 - \$400,000) x (15 / 50) = \$330,000.

Value = \$1,500,000 - \$300,000 - \$330,000 + \$250,000 = \$1,120,000.