A commercial property generates $120,000 annual net income. Using a capitalisation rate of 8%, what is the indicated value using the capitalisation approach?
Correct Answer
C) $1,500,000
The capitalisation approach calculates value by dividing net income by the capitalisation rate: $120,000 ÷ 0.08 = $1,500,000. This method converts income into capital value using market-derived capitalisation rates.
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A commercial property generates $120,000 annual net income. Using a capitalisation rate of 8%, what is the estimated value using the capitalisation approach?
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