- CFA Exams
- CFA Level I Exam
- Study Session 15. Alternative Investments
- Reading 39. Private Real Estate Investments
- Subject 5. The cost and sales comparison approaches to valuation
CFA Practice Question
Suppose the total reproduction cost of a building is $750,000, its effective age is 5 years, its total economic life is 30 years, the reproduction cost of short-lived curable items is $50,000, and the reproduction cost of the short-lived incurable items is $100,000. What is the total long-lived physical deterioration for this building?
A. 100,000.
B. 125,000.
C. 25,000.
Explanation: (750,000 - 150,000) x 5 / 30 = 100,000.
User Contributed Comments 4
| User | Comment |
|---|---|
| alejandroc | Remove reproduction cost of other items before calculating per-year deterioration! |
| chau76 | is this answer correct? wouldn't it be incurable= (750-50) x (5/30) = 116.67, total = curable + incurable, 50+116.67 = 166.67? |
| littlecow | you have to remove the 100,000 too, chau76. |
| mtsimone | •Repl Cost - Total Curable = Curable Repl Cost(CRC) •CRC(Effective/Economic) = Incurable (what the question calls 'Long-Lived Physical Deterioration) ∴750k-150k = 600k and 600k(5/30) = 100k |