Real Estate Math
A commercial property has an annual NOI of $112,500. If cap rates in the area have compressed from 9% to 7.5%, what is the increase in property value?
A$250,000✓ Correct
B$500,000
C$187,500
D$375,000
Explanation
Value at 9% = $112,500 ÷ 0.09 = $1,250,000. Value at 7.5% = $112,500 ÷ 0.075 = $1,500,000. Increase = $1,500,000 − $1,250,000 = $250,000.
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