Question

Part A – EVC Analysis

A homeowner has asked a local real estate agent for advice on the price he should set for his house. The real estate agent notes that the only comparable house in the neighborhood that is currently for sale is asking $350,000. Both houses are on a hill that overlooks a beautiful lake, but the owner’s house is forty feet farther up the hill than the comparable house. The agent estimates that, in this area, customers will pay an additional $10,000 for a house for each ten added feet of elevation associated with the house’s location. The owner’s house has an old, outdated kitchen, but the sellers of the comparable house have just spent $24,000 to remodel their kitchen. What is the selling price that the real estate agent should recommend and why?

Lincoln Manufacturing has just developed a more durable commercial carpeting. It has all the advantages of the currently available commercial carpeting and lasts twice as long. Lincoln’s materials and labour costs for producing this new carpeting are $14.50 per square yard. Buyers of commercial carpeting must have it installed by independent contractors whose installation charges for this new carpeting average $10 per square yard. The price of the currently available commercial carpeting averages $12 per square yard. Independent contractors charge $8 per square yard for installing the currently available commercial carpeting.

(a) Use EVC analysis to calculate the value for commercial buyers of a square yard of Lincoln’s new carpeting.

(b) Recommend a price for a square yard of Lincoln’s new carpeting and justify your recommendation.

Answer 1

anss.....
Part A
- Current sale price of comparable house= $350,000
Add- price of 40feet @ $10,000 for 10feet= $40,000
Less- Cost of remodelling kitchen = $24,000
Fair selling price = $366,000
a- Material and labor cost= $14.50
Add- Installation charge= $10
Value for commercial buyer= $24.50
b- Available commercial carpenting price is $12 +$ 8 installationcharge= $20. we have to noted that Lincoln carpet last twice long so he can charge 50% more than the available carpet. He can charge $30 including installation charge.