A commercial property investor in Alberta is analyzing a potential acquisition. The property generates $200,000 in annual net operating income and comparable properties are trading at a 7% capitalization rate. What is the estimated market value?
Correct Answer
D) $2,857,143
Using the income approach: Value = Net Operating Income / Capitalization Rate. Value = $200,000 / 0.07 = $2,857,143. This formula is fundamental to commercial property valuation in Alberta and across Canada. The cap rate reflects the expected rate of return and risk associated with similar properties in the Alberta market.
Why This Is the Correct Answer
The income approach formula Value = NOI / Cap Rate is the standard method for commercial property valuation. $200,000 / 0.07 = $2,857,143. This calculation is consistent with the Appraisal Institute of Canada standards and is the primary valuation method used for income-producing properties in Alberta and across Canada.
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