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QuestionFind the current value of a building with a replacement cost of \$560,000, 40 years life, and 30 years remaining. Options: \$420,000, \$140,000, \$392,000, \$560,000.

Studdy Solution

STEP 1

Assumptions1. The replacement cost of the new building is \$560,000. The estimated economic life of the building is40 years3. The estimated remaining life of the building is30 years4. The current value of the building is calculated by the ratio of the remaining life to the economic life, multiplied by the replacement cost

STEP 2

First, we need to find the ratio of the remaining life to the economic life. We can do this by dividing the remaining life by the economic life.
Ratio=Remaining lifeconomic lifeRatio = \frac{Remaining\, life}{conomic\, life}

STEP 3

Now, plug in the given values for the remaining life and the economic life to calculate the ratio.
Ratio=30 years40 yearsRatio = \frac{30\, years}{40\, years}

STEP 4

Calculate the ratio.
Ratio=30 years40 years=0.75Ratio = \frac{30\, years}{40\, years} =0.75

STEP 5

Now that we have the ratio, we can find the current value of the building. This is done by multiplying the replacement cost by the ratio.
Current value=Replacement costtimesRatioCurrent\, value = Replacement\, cost \\times Ratio

STEP 6

Plug in the values for the replacement cost and the ratio to calculate the current value.
Current value=$560,000times0.75Current\, value = \$560,000 \\times0.75

STEP 7

Calculate the current value of the building.
Current value=$560,000times0.75=$420,000Current\, value = \$560,000 \\times0.75 = \$420,000The current value of the building is \$420,000.

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