In the capitalisation approach, if a commercial property generates $120,000 annual net income and the market capitalisation rate is 8%, what is the indicated value?
Correct Answer
C) $1,500,000
Using the capitalisation formula: Value = Net Income ÷ Capitalisation Rate. Therefore: $120,000 ÷ 0.08 = $1,500,000. This method converts income into capital value based on market-derived capitalisation rates.
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