Question

Suppose that you are attempting to value an income producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 7.5%. If the projected first year net operating income (NOI) for the subject property is $135,500, what is the indicated value of the subject using direct capitalization?A) $150,555.56 B) $9,033,333.33C) $1,806,666,67D) $144,985.00.

Answer 1

Answer:

option (C) $1,806,666.67

Explanation:

Data provided in the question:

The overall capitalization rate = 7.5% = 0.075

The projected first year net operating income (NOI) for the subject property

= $135,500

Now,

using the direct capitalization

The indicated value of of the subject will be

Value = $\frac{\textup{net operating income}}{\textup{Overall capitalization rate}}$

Value = $\frac{\textup{135,500}}{\textup{0.075}}$

or

value = $1,806,666.67

Hence,

The correct answer is option (C) $1,806,666.67