--- title: "Fair market value of Tata Sipradi showroom" subject: "Construction Management" chapter: 13 key: "semester_8/construction_management:value-tata-sipradi-showroom" source: https://www.bctengineer.com/q/semester_8/construction_management/value-tata-sipradi-showroom site: BCT Engineering --- # Fair market value of Tata Sipradi showroom Construction Management · Chapter 13: Valuation - Asked in: 2079 Jestha, 2+6 marks - Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14 - Page: https://www.bctengineer.com/q/semester_8/construction_management/value-tata-sipradi-showroom - Whole chapter: https://www.bctengineer.com/md/semester_8/construction_management/chapter-13 ## Question Assess fair market value of Tata Sipradi Showroom with following information: - Covered land area = 14 aana @ Rs 95,00,000 per aana prevailing rate - Built up Showroom = 3355 sqft @ Rs 7200/ sqft of current construction - Gross monthly income of Showroom = Rs 80,00,000 - Municipal Tax = 8% of gross income - Monthly Staff Salary and administrative expenses = Rs 2,90,000 - Advertisement expenses (annual) = Rs 60,00,000 - Lifting and other installed equipment costing Rs 58,00,000 with estimated life of 15 yrs undertaken for salvage value with 30% estimated salvage at the end with 7% interest per annum - Electricity, customer courtesy, solid waste disposal, drinking water supply and other miscellaneous cost = 15% of gross income - Insurance premium = Rs 40,00,000 - Maintenance cost = Rs 50,000 per month Consider year's purchase for 60 yrs with prevailing interest rate 8% and 10% redemption of capital. ## Short answer Gross annual income Rs9,60,00,000; outgoings Rs3,63,21,566 including equipment sinking fund Rs1,61,566. Net income Rs5,96,78,434; land interest Rs1,06,40,000; balance capitalized at YP 12.449 (8%, 10%, 60 years) is Rs61,04,65,996; plus land Rs13,30,00,000 gives about Rs74.35 crore. ## Answer **Method:** income (profit) method with dual-rate YP. Net income from the showroom is found after all outgoings, interest on land is deducted (land is not redeemed), the balance is capitalised, and land is added. Insurance and advertisement are taken as annual figures. **Annual gross income** = 80,00,000 × 12 = Rs 9,60,00,000 **Outgoings** | Item | Calculation | Rs | |---|---|---| | Municipal tax | 8% × 9,60,00,000 | 76,80,000 | | Staff and administration | 2,90,000 × 12 | 34,80,000 | | Advertisement | annual | 60,00,000 | | Electricity and other costs | 15% × 9,60,00,000 | 1,44,00,000 | | Insurance premium | annual | 40,00,000 | | Maintenance | 50,000 × 12 | 6,00,000 | | Sinking fund for equipment | see below | 1,61,566 | | **Total outgoings** | | **3,63,21,566** | **Sinking fund for equipment:** depreciable amount = 70% × 58,00,000 = Rs 40,60,000 (30% salvage), n = 15 years, i = 7%: $$ I = \frac{40{,}60{,}000 \times 0.07}{(1.07)^{15} - 1} = Rs\ 1{,}61{,}566 $$ **Net income** = 9,60,00,000 − 3,63,21,566 = Rs 5,96,78,434 **Land:** 14 aana × 95,00,000 = Rs 13,30,00,000 Interest on land at 8% = Rs 1,06,40,000 Net income from building and equipment = 5,96,78,434 − 1,06,40,000 = Rs 4,90,38,434 **Year's purchase (60 years, 8%, redemption 10%)** $$ YP = \frac{1}{0.08 + \dfrac{0.10}{(1.10)^{60}-1}} = 12.449 $$ **Capitalised value of building** = 4,90,38,434 × 12.449 = Rs 61,04,65,996 **Market value** = building + land = 61,04,65,996 + 13,30,00,000 = Rs 74,34,65,996 (For comparison, the cost of the building = 3355 × 7200 = Rs 2,41,56,000; the market value is far higher because of the business income.) **Answer: Fair market value of the showroom is about Rs 74.35 crore.** ## Check yourself The answer's key points as multiple-choice questions, with the correct option and why. 1. Which method does the answer use to find the market value of the showroom? A. Rental method with a single-rate YP B. Cost method using the plinth area rate C. Income (profit) method with dual-rate YP, land added separately D. Comparison with sale of nearby land only Answer: C. Net income after all outgoings is reduced by land interest, capitalised with dual-rate YP, and land is added. (Key point: Income method with dual-rate YP) 2. For the equipment costing Rs 58,00,000 with 30% salvage, what amount is used in the sinking fund formula? A. Rs 58,00,000 B. Rs 17,40,000 C. Rs 40,60,000 D. Rs 75,40,000 Answer: C. Only the depreciable amount, 70% of cost = Rs 40,60,000, is redeemed; the 30% salvage is recovered. (Key point: Sinking fund for equipment) 3. Which item is taken as an annual figure and NOT multiplied by 12? A. Staff and administration expenses B. Maintenance cost C. Insurance premium and advertisement D. Gross income Answer: C. Insurance (Rs 40,00,000) and advertisement (Rs 60,00,000) are given annually; monthly items like salaries and maintenance are multiplied by 12. (Key point: Annualising outgoings) 4. The land is 14 aana x Rs 95,00,000 = Rs 13,30,00,000. What is deducted from the net income at 8%? A. Rs 1,06,40,000 B. Rs 13,30,00,000 C. Rs 1,33,00,000 D. Rs 76,80,000 Answer: A. Interest on land = 8% x 13,30,00,000 = Rs 1,06,40,000; land is then added at its full value. (Key point: Land interest deduction) 5. Why is the market value (about Rs 74.35 crore) far higher than the building cost of Rs 2.42 crore? A. Because the YP is 60 years B. Because depreciation was ignored C. Because the value is driven by business income, not building cost D. Because the land rate is wrong Answer: C. In the income method, value follows the net income from the showroom business rather than construction cost. 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