# Cost / Highest and Best Use Questions and Topics

## Questions to Expect in the  Cost / Highest and Best Use  Module

1.       An apartment building lacks the kind of standard amenity package found in typical buildings (workout equipment, sauna, etc.). As a result NOI is estimated to be about \$30,000 less than it would be if the amenities were constructed. The building has unused, and otherwise un-rentable, space that could accommodate such construction at a reproduction cost of \$400,000, but only \$300,000 if included in new construction today.  Property cap rates are 8%. What is the amount of Functional Obsolescence?

A.       \$0
B.       \$25,000
D.       \$100,000

2.       What is the equilibrium rent (rounded to \$10,000) for the following property given:
Replacement cost + profit = \$10,000,000
Land Value = \$1,000,000
Cap rate = 10%
Depreciation (physical and functional) = 30%
OER = 40%
Equilibrium Vacancy Rate = 5%

A.        \$1,230,000
B.        \$1,340,000
C.        \$1,350,000

3.        Estimate the amount of incurable long-lived physical depreciation given the following information:
1. Current replacement cost of B = \$940,000
1b. No items of curable physical depreciation
2. Incurable short lived physical depreciation: use \$40,000 current cost with useful life of 20 years
3. Age of the Building = 10 years (now used in calc)
4. Effective age = 10 years (no curable items to be fixed)
5. Remaining economic life =40 years

A.        \$184,000
B.        \$188,000