Property Valuation
A Florida office building generates a Net Operating Income (NOI) of $120,000 per year. Using a capitalization rate of 8%, what is the indicated value?
A$960,000
B$1,200,000
C$1,500,000✓ Correct
D$1,800,000
Explanation
Value = NOI ÷ Cap Rate = $120,000 ÷ 0.08 = $1,500,000. The capitalization rate converts income into an estimate of value. A lower cap rate indicates higher value for the same income; a higher cap rate indicates lower value.
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