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A property produces a net operating income of $20,000 in year one ; $30,000 in year...

A property produces a net operating income of $20,000 in year one ; $30,000 in year two, and $45,000 in years 3 to 6. The property will be sold in year five. The resale price is estimated using a terminal capitalization rate of 8.5% applied to the sixth year NOI. What is the value of the property today using a 10.5% discount rate?

A. $468,892

B. $502,634

C. $454,872

D. $424,337

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Homework Answers

Answer #1

- First, we will Calculate the Resale Value of Property in 5 years:-

Value of Property = Net operating income(NOI) at year 6/Capitalization Rate

=$45,000/8.5%

=$529,411.76

Now, We will calculate Value of Property today using a 10.5% discount rate(r) :-

Value of Property = 18100 + 24570 + 33352 + 30183 + 27315 + 321353

Value of property Today is $ 454,873

Hence, Option C

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