CFA Practice Question
The income approach to estimating a property's market value:
A. Uses the sales prices of properties that are similar to the subject property as the basic input variable.
B. Views a property's value as the present value of its future net operating income.
C. Ignores the effect of property taxes on an investment.
Explanation: Under the income capitalization approach, the estimated value of a property's net future operating income is the capitalized value of the constant NOI:
Estimated value = Annual Net Operating Income / Market Capitalization Rate
The market cap rate is derived from a benchmark NOI and benchmark price, or from the NOIs and prices of comparable properties. Property taxes are deducted in the calculation of net operating income (NOI)
User Contributed Comments 1
| User | Comment |
|---|---|
| shiva5555 | tricky, it ignores income taxes not property taxes. |