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To estimate depreciation, Carneghi determined that, due to
the several renovations, the effective age of the theater was
less than its chronological age of 57 years. Carneghi thus
estimated the effective age of the theater to be 30 years.30
Based upon the Marshall Valuation Cost Estimation Manual, which
estimates the economic life of a good quality, Class C (concrete
construction) motion picture or performing arts theater to be 45
years, Carneghi determined that the remaining economic life of
the theater was 15 years. Based on the effective age and
remaining economic life of the theater, and after consulting the
Marshall Valuation Manual depreciation tables, Carneghi estimated
the amount of depreciation due to incurable physical
deterioration for the theater to be 45 percent, or $2,746,599.
Carneghi did not find that deductions for functional obsolescence
or external obsolescence were warranted.
Under the replacement cost method, Carneghi valued the
theater at $3,740,000 (rounded), computed as follows:
Total Replacement Cost New $6,103,554
Less: Depreciation (2,746,599)
Total Depreciated Value of Improvements3,356,955
Add: Land Value 383,902
Indicated Market Value by Cost Approach$3,740,857
30 At one point in his report, Carneghi states that the
effective age of both the theater and the retail/office component
is “35 years”. However, in his table entitled “Cost Analysis”
and in his calculations, Carneghi uses the 30 year figure as the
effective age of the property. Consequently, we find the 35 year
figure to be a typographical error.
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