Jean Gabrion believes her hotel has been over-assessed for tax purposes. The assessed value is supposed to equal one half of the market value. She realizes that the best approach to appraising her property is the income capitalization approach, but before an “expensive” study is undertaken, she asks you to calculate its value based on the cost approach. She provides you with the following information:

1. Inarecent bona fide appraisal, the parcel of land was appraised for $200,000.

2. Her hotel contains 60,000 square feet and was constructed at a cost of $50 per square foot.

3. The hotel is 10 years old and is expected to have 20 years of remaining use.

4. The estimated construction cost at this time for her hotel per three reliable contractors is $80 per square foot.

5. Furniture and equipment may be ignored, since they are excluded in the assessment value calculation.

Required:

1. Estimate the market value of her hotel.

2. Assume the hotel was assessed at $3,500,000. If the cost approach yields the proper market value and the tax rate is 60 mills, how much would the over-assessment cost Gabrion in annual property taxes?