Property Valuation
A Wyoming oil-producing property has mineral rights with a royalty value of $80,000/year. If a 10% cap rate is applied, what is the indicated value of the mineral rights?
A$640,000
B$720,000
C$800,000✓ Correct
D$880,000
Explanation
Value = Income ÷ Cap Rate = $80,000 ÷ 0.10 = $800,000. The income capitalization approach can be applied to mineral rights income just as with real property income.
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