To help you master the material in EST 411: Advanced Valuation, I have developed a
comprehensive set of practice questions. These are designed to capture all the theoretical data,
formulas, and calculation methods found in your document.
Part 1: Theory and Definitions
1. Define "Specialized Properties" and explain why they are difficult to value using the
standard Market Comparison Method.
2. List four factors that can make a property "specialized" (e.g., construction, size, etc.).
3. Categorize the following examples into their correct specialized property types (Industrial,
Institutional, or Public Service):
○ University, Oil Refinery, Museum, Hospital, Power Station, Library.
4. What is Depreciated Replacement Cost (DRC), and why is it the primary method for
valuing non-income-producing specialized properties?
5. Explain the concept of a Lease Premium. What are the advantages of a premium from
the perspective of both the Lessor and the Lessee?
6. Define "Profit Rent" and explain why a sinking fund is necessary for a lessee who has
paid a premium.
Part 2: Calculation Procedures
1. The DRC Method: Outline the four-step process for valuing a specialized building and its
site using the DRC approach.
2. Plant and Machinery: When valuing specialized machinery, what five cost factors must
be included in the "Replacement Cost" before depreciation is applied?
3. The Sedgewick Formula: * Write out the formula.
○ Identify what the variables S, F, and R represent.
○ Explain the purpose of calculating the "Special Value Element."
4. The Profit Method: Describe the sequence of deductions required to move from "Gross
Profit" to the "Net Annual Value (Rent)."
Part 3: Practical Application (Based on Document Data)
Use the specific figures from your notes to solve these scenarios:
Scenario A: Library Valuation (DRC) Calculate the total value of a library with the following
data:
● Total Area: 1,980 \text{ m}^2
● New Construction Rate: ₦3,200 per \text{m}^2
● Age/Obsolescence Allowance: 35%
● Site Area: 0.5 Hectares
● Land Value: ₦650,000 per Acre (Note: 1 \text{ Ha} = 2.471 \text{ Acres})
Scenario B: Petrol Station (Sedgewick) A filling station sells 1.2 million litres of petrol annually
at a tied rent of ₦0.20/litre. The rental value of the workshops and offices is ₦360,000.
● Calculate the Special Value Element (S).
● Calculate the Total Annual Value.
● Find the Capital Value at a 12% yield in perpetuity.
Scenario C: Hotel Valuation (Accounts) A hotel has gross receipts of ₦12.5m and working
expenses of ₦4.5m. The operator requires ₦3.5m for remuneration and risk. Local rates are
₦1.5m.
● What is the Divisible Balance?
● What is the Net Annual Value?
● Value the property at a 10% cap rate.
Scenario D: Lease Premiums
1. A tenant currently pays ₦50,000 rent. Calculate the Premium required to reduce this rent
to ₦30,000 for 20 years (Assume YP = 8.514).
2. A tenant pays a Premium of ₦100,000 upfront for a 15-year lease. If the full rental value
is ₦250,000, what should the new Reduced Rent be? (Assume YP = 7.606).
Part 4: Advanced Concepts
1. Surrender and Renewal: Why would a lessee choose to surrender a lease with 3 years
remaining to take out a new 20-year lease?
2. The "Marriage" of Interests: In a lease renewal, how do you calculate the premium the
tenant must pay the landlord to account for the "extension of the term"?
Tip for Study: If you can answer all of these without looking at your notes, you have a complete
grasp of the EST 411 material provided in the document. Would you like the answer key for the
math sections to check your work?