--- title: "Valuation of a cinema hall (land Rs 15 lakh)" subject: "Construction Management" chapter: 13 key: "semester_8/construction_management:value-cinema-hall-2077" source: https://www.bctengineer.com/q/semester_8/construction_management/value-cinema-hall-2077 site: BCT Engineering --- # Valuation of a cinema hall (land Rs 15 lakh) Construction Management · Chapter 13: Valuation - Asked in: 2077 Chaitra, 2+6 marks; 2070 Bhadra, 5 marks (asked 2 times) - Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14 - Page: https://www.bctengineer.com/q/semester_8/construction_management/value-cinema-hall-2077 - Whole chapter: https://www.bctengineer.com/md/semester_8/construction_management/chapter-13 ## Question What are the various factors affecting the value of the property? Work out the valuation of a cinema hall with the following: a) Cost of land = Rs. 15,00,000 b) Gross income = Rs. 90,00,000 c) Expenses undergone per year to run the Cinema including staff salary, electricity charges, municipal taxes, stationery and printing etc 30% of gross income d) Repair and maintenance of machinery, plant and equipment at 5% of their capital cost which is Rs. 55,00,000 e) Sinking fund for machinery, plant and equipment whose life is estimated at 25 years at 5% after allowing 10% scrap value. f) Insurance premium is 60,000 per annum Assume year's purchase for 60 years at 8% and redemption of capital at 4% and repair of hall at 2% of gross income. ## Short answer Net annual income after deducting expenses, repairs, insurance, and sinking fund is Rs 56,81,285. After deducting 8% interest on land, building income of Rs 55,61,285 is capitalised with dual-rate YP (8%, 4%, 60 years) = 11.876, giving building value Rs 6,60,47,068. Adding land Rs 15,00,000 yields total value Rs 6,75,47,068. ## Answer #### Factors affecting the value of property Location, demand and supply, utility and use, size and shape of the plot, age and condition of the building, income (rent), legal restrictions (zoning, FAR, tenancy), services and infrastructure, economic conditions, risk of disasters, and the general neighbourhood and image. #### Valuation of the cinema hall (income / profit method) **Method:** The net annual income is found after deducting all outgoings, and is capitalised by a dual-rate year's purchase. Land is not redeemed, so interest on the land value is deducted from the net income first; the remainder is the income from the building and plant, which is capitalised and then added to the land value. (The sinking fund for the machinery is taken as an annual outgoing.) **Annual outgoings** | Item | Calculation | Rs | |---|---|---| | Running expenses | 30% × 90,00,000 | 27,00,000 | | Repair and maintenance of machinery | 5% × 55,00,000 | 2,75,000 | | Repair of hall | 2% × 90,00,000 | 1,80,000 | | Insurance premium | | 60,000 | | Sinking fund for machinery | see below | 1,03,715 | | **Total outgoings** | | **33,18,715** | **Sinking fund for machinery:** depreciable amount = 90% × 55,00,000 = Rs 49,50,000 (the 10% scrap value is recovered). For n = 25 years and i = 5%: $$ I_{sf} = \frac{S\,i}{(1+i)^n-1} = \frac{49{,}50{,}000 \times 0.05}{(1.05)^{25}-1} = Rs\ 1{,}03{,}715 $$ **Net income** $$ \begin{aligned} \text{Net income} &= 90{,}00{,}000 - 33{,}18{,}715 = Rs\ 56{,}81{,}285 \\ \text{Interest on land at 8\%} &= 0.08 \times 15{,}00{,}000 = Rs\ 1{,}20{,}000 \\ \text{Net income from building} &= 56{,}81{,}285 - 1{,}20{,}000 = Rs\ 55{,}61{,}285 \end{aligned} $$ **Year's purchase (60 years, interest 8%, redemption of capital 4%)** $$ YP = \frac{1}{i + \dfrac{r}{(1+r)^n - 1}} = \frac{1}{0.08 + \dfrac{0.04}{(1.04)^{60}-1}} = 11.876 $$ **Capitalised value of building and plant** $$ 55{,}61{,}285 \times 11.876 = Rs\ 6{,}60{,}47{,}068 $$ **Value of the property = building value + land = 6,60,47,068 + 15,00,000 = Rs 6,75,47,068** **Answer: Value of the cinema hall is about Rs 6.75 crore (Rs 6,75,47,000).** ## Check yourself The answer's key points as multiple-choice questions, with the correct option and why. 1. Why is interest on land deducted from net income first? A. Land is free B. To increase building value C. Land does not depreciate or get redeemed, so its income is only interest on land value D. Land earns no income Answer: C. Land is not redeemed, so land's share of income is interest at 8% of its value, and the rest is capitalised. (Key point: Land treatment) 2. What amount is used in the machinery sinking fund? A. 90% of Rs 55,00,000 = Rs 49,50,000 (10% scrap recovered) B. Full Rs 55,00,000 C. 10% of cost D. Rs 15,00,000 Answer: A. Scrap value 10% is recovered, so only 90% is redeemed. (Key point: Sinking fund depreciable amount) 3. Which formula gives the dual-rate year's purchase? A. 1 / i B. n x i C. 1 / [i + r/((1+r)^n - 1)] D. (1+i)^n Answer: C. Dual rate YP includes interest i plus sinking fund rate for redemption of capital. (Key point: Year's purchase) 4. What are net income and the property value? A. Net income Rs 56,81,285; value about Rs 6.75 crore B. Net income Rs 90,00,000; value Rs 1 crore C. Net income Rs 33,18,715; value Rs 3 crore D. Net income Rs 27,00,000; value Rs 15 lakh Answer: A. 90,00,000 - 33,18,715 = 56,81,285; less land interest 1,20,000 gives 55,61,285 x 11.876 plus land = about Rs 6.75 crore. 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