Property Valuation
The income capitalization approach divides net operating income by the capitalization rate to arrive at:
AThe gross rent multiplier
BThe indicated value of the property✓ Correct
CThe debt service coverage ratio
DThe replacement cost
Explanation
The income capitalization formula is: Value = NOI / Cap Rate. Dividing annual net operating income by the market capitalization rate produces the indicated value of the income-producing property.
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