What is the indicated Market Value of a property with a Net Income of $21,832 and a Capitalization Rate of 12.5%?

What is the indicated Market Value of a property with a Net Income of $21,832 and a Capitalization Rate of 12.5%?

• A. $174,656
• B. $160,000
• C. $189,000
• D. $150,000

Answer: (A)

To determine the indicated Market Value of a property using its Net Income and Capitalization Rate, you can apply the income approach formula for valuation, which is: Market Value = Net Income / Capitalization Rate. In this case, the Net Income is $21,832, and the Capitalization Rate is 12.5% (or 0.125 when expressed as a decimal). Using the formula: Market Value = $21,832 / 0.125. Calculating this gives: Market Value = $174,656. Therefore, this calculation confirms that the indicated Market Value of the property is indeed $174,656. This approach highlights how an appraisal based on projected income can yield a quantifiable value reflective of the potential earning capacity of the property.

To determine the indicated Market Value of a property using its Net Income and Capitalization Rate, you can apply the income approach formula for valuation, which is:

Market Value = Net Income / Capitalization Rate.

In this case, the Net Income is $21,832, and the Capitalization Rate is 12.5% (or 0.125 when expressed as a decimal).

Using the formula:

Market Value = $21,832 / 0.125.

Calculating this gives:

Market Value = $174,656.

Therefore, this calculation confirms that the indicated Market Value of the property is indeed $174,656. This approach highlights how an appraisal based on projected income can yield a quantifiable value reflective of the potential earning capacity of the property.