CFA Practice Question

There are 139 practice questions for this study session.

CFA Practice Question

A small office building that recently sold for $175,000 generates annual net operating income of $27,500. What is the market value of this building under the income approach assuming a capitalization rate of 12%?

A. $229,167
B. $257,300
C. $260,133
Correct Answer: A

The market value of the property under the income approach would be NOI/k = $27,500/.12 = $229,167.

User Contributed Comments 6

User Comment
johntan1979 And it sold for $175,000... phew what a deal!
gill15 THats not good deal....market value is 229 000
schweitzdm Wouldn't it be a deal if you were the buyer?
janglejuic You don't know if it's a deal yet, because it doesn't say how much it cost to repair and rehab to bring to rent ready status + maintenance tax and other costs. Remember that transaction costs and management fees are high.
ankurwa10 formula => mkt value = NOI/capitalization rate
Inaganti6 just like a perpetuity. V0 = D0/ r
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