In March 2026, investor Malik Ford values an office building using direct capitalization. Effective gross income is $120,000, annual operating expenses are $40,000, and the market cap rate is 8%. If operating expenses increase by $8,000 and everything else stays the same, what is the new indicated value?
Correct Answer
D) $900,000
Step 1: New NOI = $120,000 − ($40,000 + $8,000) = $72,000. Step 2: New Value = $72,000 ÷ 0.08 = $900,000. Higher operating expenses reduce NOI, and with the cap rate unchanged, that lower NOI produces a lower value.
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