What does rule of thumb evaluation method mean? no matter how many times i read this, I get different answers..and how would I calculate this or what is the formula for the rule of thumb evaluation method???
The rule of thumb evaluation method is a quick and approximate way to estimate a value or make a rough calculation based on practical experience or common knowledge. It is not a precise or scientific method, but rather a general guideline.
There is no specific formula for the rule of thumb evaluation method, as it relies on subjective judgment and varies depending on the context or industry. It is often based on historical data or industry standards. Here are some examples:
1. Real Estate: A common rule of thumb is to estimate the value of a property by multiplying the annual rental income by a certain factor (e.g., 10 times the annual rent). For example, if a property generates $10,000 in annual rent, its rough value would be $100,000.
2. Construction: When estimating construction costs, a rule of thumb might be to divide the total square footage of a building by a certain cost per square foot. For instance, if a building is 2,000 square feet and the cost per square foot is $200, a rough estimate would be $400,000.
3. Finance: In investing, a rule of thumb could be to estimate the future value of an investment by multiplying the initial investment amount by a certain growth rate. For example, if you invest $1,000 with an expected annual return of 7%, you can estimate the future value after 10 years to be approximately $1,967 (1,000 * 1.07^10).
It's important to note that while these examples give you a sense of how the rule of thumb evaluation method works, they may not yield precise results and should not be relied upon for making critical or accurate decisions. Professional analysis and industry-specific knowledge is recommended for more accurate evaluations.