If net operating income is 58,300 and the capitalization rate used is 8 percent, what is the estimated value?

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Multiple Choice

If net operating income is 58,300 and the capitalization rate used is 8 percent, what is the estimated value?

Explanation:
Direct capitalization ties value to income: Value = Net Operating Income ÷ Capitalization Rate. With NOI = 58,300 and cap rate = 8% (0.08), the value is 58,300 ÷ 0.08 = 728,750. Quick check: 0.08 × 728,750 = 58,300. The cap rate reflects the return an investor requires for the property's risk, so this relationship shows how income converts to value. Therefore, the estimated value is 728,750.

Direct capitalization ties value to income: Value = Net Operating Income ÷ Capitalization Rate. With NOI = 58,300 and cap rate = 8% (0.08), the value is 58,300 ÷ 0.08 = 728,750. Quick check: 0.08 × 728,750 = 58,300. The cap rate reflects the return an investor requires for the property's risk, so this relationship shows how income converts to value. Therefore, the estimated value is 728,750.

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