Principles and Methods of Valuation
PMV611S
Question 1
For each of the following statements indicate whether it is 'TRUE' or 'FALSE'. Each correct answer carries 1
mark.
(20)
a) In the calculation of depreciation using the cost approach, remaining economic life is economic life
plus the effective age of a building.
(1)
b) The profits method of valuation is applicable to properties such as service stations and religious
buildings in an active market.
(1)
c) The actual age of a building is defined as the number of years which have elapsed since the
construction was completed.
(1)
d) Of the three causes of depreciation on buildings, only functional obsolescence cannot be cured.
(1)
e) In valuing income producing properties, they are two main approaches we can use, the direct
capitalization and the capital flow method.
(1)
f) The gross operating income includes insurance, utilities, management fees, dividends, and vacancies.
(1)
g) In determining the yield on a property, we consider the risk-free rate, the sector risk, illiquidity risk
premium, management premium and expected capital gain.
(1)
h) In applying the comparative method of valuation, we compare unique properties which have sold in
the past and using evidence of those transactions to assessthe value of the subject property.
(1)
i) The comparative method of valuation is most suited for residential properties where there is a
freehold interest or a long leasehold interest.
(1)
j) The Amount of N$1 Per Annum refers to the amount to which annual deposits of N$1 each will grow
in each number of years and at a stated rate of interest.
(1)
Second Opportunity Examination Paper
Page 2 of 6
July 2023