A block of units was constructed for you five years ago at a cost of $1 200 000. The land had been purchased for $100 000. You now wish to sell the property. You have consulted with your accountant and, to help you, she has provided you with the following calculation: 1. Present value of $1514 459 Based on your five-year experience, you believe that the average net cash inflow will be $240 000 per year for the next 20 years. This estimate is based on projections of future rentals, tax savings due to depreciation, expenditures for electricity, repairs, property taxes, and so on. A 20-year horizon was chosen because that is when you plan to retire. At the end of year 20, you believe the property can be sold for

er cent per year. On the basis of your $200 000. Your present rate of return is 15 per cent per v estimates, your accountant calculated present value as follows: Present value of ordinary annuity of $240 000, 20 periods, 15% Present value of $200 000, 20 periods, 15% $ 1502 239 12 220 $ 1514459 2. Fair value $2 000 000 Two different real estate valuers were hired to give an estimate of the current of the property. One said the property was worth $2 200 000 ($200 000 for Jand, $ 2 000 000 for the building) and the other said it was worth $1 800 000 ($300 000 for the land, $1500 000 for the building). The accountant took the average of the two estimates. 3. Carrying amount $1 080 000 The accountant made the following calculations: Original cost of building $ 1 200 000 Accumulated depreciation (5 years x $44000) 220 000 980 000 100 000 Land (historical ccst) $ 1083 000 Depreciation was based on an expected useful life of 25 years and a residual value of $100 000 4. Current cost $1 750 000 The accountant used specific price indexes, published by the government, to determine the gross current cost of constructing the building today with reference to labour, materials and overhead. Her estimate was $1 800 000. Because the building is actually five years old, she ascertained the amount of accumulated depreciation to be $300 000, based on a 30-year economic life. The net amount ent cost was $1 500 000. The value of the land was considered to be worth 50000, the average of the estimates by the two valuers. Required Comment on each of the four estimates wi you as a potential seller of the property. of the four estimates with respect to its relevance and reliability er cent per year. On the basis of your $200 000. Your present rate of return is 15 per cent per v estimates, your accountant calculated present value as follows: Present value of ordinary annuity of $240 000, 20 periods, 15% Present value of $200 000, 20 periods, 15% $ 1502 239 12 220 $ 1514459 2. Fair value $2 000 000 Two different real estate valuers were hired to give an estimate of the current of the property. One said the property was worth $2 200 000 ($200 000 for Jand, $ 2 000 000 for the building) and the other said it was worth $1 800 000 ($300 000 for the land, $1500 000 for the building). The accountant took the average of the two estimates. 3. Carrying amount $1 080 000 The accountant made the following calculations: Original cost of building $ 1 200 000 Accumulated depreciation (5 years x $44000) 220 000 980 000 100 000 Land (historical ccst) $ 1083 000 Depreciation was based on an expected useful life of 25 years and a residual value of $100 000 4. Current cost $1 750 000 The accountant used specific price indexes, published by the government, to determine the gross current cost of constructing the building today with reference to labour, materials and overhead. Her estimate was $1 800 000. Because the building is actually five years old, she ascertained the amount of accumulated depreciation to be $300 000, based on a 30-year economic life. The net amount ent cost was $1 500 000. The value of the land was considered to be worth 50000, the average of the estimates by the two valuers. Required Comment on each of the four estimates wi you as a potential seller of the property. of the four estimates with respect to its relevance and reliability