Property Valuation
A Mississippi commercial property's income is analyzed using a 10-year discounted cash flow (DCF) model. The analyst uses a 9% discount rate. If the property generates consistent NOI of $80,000/year and has a $1,100,000 terminal (reversion) value at year 10, the present value of the reversion is approximately:
A$463,930✓ Correct
B$550,000
C$1,100,000
D$385,000
Explanation
PV of reversion = Terminal Value ÷ (1 + discount rate)^10 = $1,100,000 ÷ (1.09)^10 = $1,100,000 ÷ 2.3674 = $464,688 ≈ $463,930. Discounting a future lump sum back to present value at 9% over 10 years reduces $1,100,000 to approximately $464,000.
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