A commercial property in Calgary generates $120,000 annual net operating income. Using a capitalization rate of 8%, what is the estimated value using the income approach?
Correct Answer
D) $1,500,000
Using the income approach formula: Value = Net Operating Income ÷ Capitalization Rate. $120,000 ÷ 0.08 = $1,500,000. This method is commonly used for income-producing properties.
Why This Is the Correct Answer
Option D ($1,500,000) is correct because it properly applies the income approach formula: Property Value = Net Operating Income ÷ Capitalization Rate. Calculating $120,000 ÷ 0.08 = $1,500,000. This fundamental valuation method is recognized under Canadian appraisal standards and is commonly used for commercial properties. The calculation directly converts the property's annual income stream into an estimated market value using the given cap rate.
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Previous Question
A commercial property has a gross rental income of $120,000 annually, operating expenses of $35,000, and comparable properties are selling at a 7.5% cap rate. Using the income approach, what is the estimated property value?
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A commercial property in Ontario generates $120,000 in net operating income annually. If similar properties in the area are selling at a 7% capitalization rate, what is the estimated value using the income approach?