A commercial property generates $120,000 annual net income. Using a capitalisation rate of 8%, what is the estimated value using the capitalisation approach?
Correct Answer
C) $1,500,000
Using the capitalisation approach formula: Value = Net Income ÷ Capitalisation Rate. Therefore, $120,000 ÷ 0.08 = $1,500,000. This method is commonly used for income-producing properties to determine value based on their earning potential.
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A commercial office building generates $500,000 annual net income. Using a capitalisation rate of 8%, what would be the property's value using the capitalisation approach?
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