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?
Correct Answer
D) $1,714,286
Using the income approach formula: Value = Net Operating Income ÷ Capitalization Rate. Therefore: $120,000 ÷ 0.07 = $1,714,286. This method converts the property's income stream into an estimated market value.
Why This Is the Correct Answer
Option D is correct because it properly applies the income approach formula: Value = Net Operating Income ÷ Capitalization Rate. With NOI of $120,000 and a cap rate of 7% (0.07), the calculation is $120,000 ÷ 0.07 = $1,714,286. This method directly converts the property's annual income stream into an estimated market value based on comparable sales data.
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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?
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