Assignment: State and Local Finance

Notes:

1. Any submitted documents that cannot be opened will not be graded and receive a zero.

2. Do your own work. You may work together, but you answers should not be the same. Answers considered to be the same will be graded as a zero.

3. Start each new question on a separate page.

1. Suppose you are assigned to assess a 50,000-square-foot office building that currently is fully leased at $10 per square foot. The owner's annual costs of operation for the building (interest, maintenance, insurance) are $40,000. The building is 10 years old and is expected to have an additional 20 years of useful life. Assuming these market conditions will continue, estimate the current market value of the building under the income approach if the discount rate is 10 percent. How does the estimate differ if the discount rate is 5 percent?

2. "If one city lowers property taxes, then most of the benefit will go to landowners in that city when taxes were reduced." Evaluate this statement in terms of economics by analyzing first the effects of the tax decrease on the amount of capital in the city and then on the markets for land, labor, and housing in the city. Under what conditions is the statement correct?