Question 87

The value of the property is $735,000.

To determine the value of the property, the net operating income (NOI) must first be calculated considering the vacancy rate and operating expenses. After calculating the NOI, the value can be derived using the capitalization rate formula.

A) $470,400

This option is significantly lower than the actual value of the property. It likely results from incorrect calculations of the net operating income or misunderstanding of the capitalization rate application. Given the gross income and considerations for vacancy and expenses, this value does not accurately represent the property’s worth.

B) $735,000

This is the correct answer, calculated by first determining the effective gross income after accounting for the 10% vacancy rate, which gives $64,800. Subtracting the annual operating expenses of $6,000 results in a net operating income of $58,800. Applying the capitalization rate of 8% yields a value of $735,000, confirming this option as correct.

C) $803,750

This value is incorrect as it suggests an inflated net operating income without proper adjustments for the vacancy rate and operating expenses. The calculations leading to this figure do not align with the standard methods used to determine property value based on income and capitalization rates.

D) $825,000

This option is also incorrect as it overestimates the property’s value. The calculations for net operating income must accurately reflect the vacancy and expenses, which shows that this option fails to consider the true financial performance of the property.

Conclusion

The correct value of $735,000 accurately reflects the property's financial performance after accounting for vacancy and operating expenses. All other options fail due to miscalculations or misunderstanding of the capitalization rate application, demonstrating that $735,000 is the only valid assessment of the property's worth based on the provided financial data.