Real Estate Math
A Salem commercial property has a net operating income of $120,000. If the market cap rate is 7%, what is the property value? If the cap rate rises to 8%, what happens to the value?
A$1,714,286 at 7%; rises to $1,875,000 at 8%
B$1,714,286 at 7%; falls to $1,500,000 at 8%
C$1,200,000 at 7%; falls to $1,050,000 at 8%
D$1,500,000 at 7%; falls to $1,200,000 at 8%✓ Correct
Explanation
At 7%: Value = $120,000 ÷ 0.07 = $1,714,286.
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