Property Valuation
A Wyoming commercial appraiser performing a 'discounted cash flow analysis' (DCF) accounts for:
AOnly the current year's NOI
BAll projected future income and reversion (sale proceeds), discounted back to present value using a discount rate✓ Correct
COnly the property's current operating expenses
DThe property's depreciation for tax purposes
Explanation
A DCF analysis projects the income-producing property's future cash flows (NOI) and the anticipated sale proceeds (reversion) at the end of the holding period, then discounts each year's cash flow back to present value using an appropriate discount (yield) rate. The sum of the discounted cash flows is the indicated value.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Math Concepts
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