76. An investor estimates an income property's operating income at $12,000. If the desired rate of return is 12%, what is the property's market value?
Answer: A
The property's market value is $100,000.
To determine the market value of the property, one can use the formula: Market Value = Operating Income / Desired Rate of Return. By applying this formula with an operating income of $12,000 and a desired return of 12% (0.12), the calculation is $12,000 / 0.12, which results in a market value of $100,000.
A) $100,000
This option is correct as it accurately represents the market value calculated using the operating income and desired rate of return. The calculation, $12,000 divided by 0.12, equals $100,000, confirming that this is indeed the correct market value.
B) $110,000
This option is incorrect. If the market value were $110,000, then using the desired rate of return of 12%, the operating income would need to be $13,200 ($110,000 x 0.12), which does not match the estimated operating income of $12,000.
C) $144,000
This option is also incorrect. A market value of $144,000 would imply an operating income of $17,280 ($144,000 x 0.12), which exceeds the given operating income of $12,000, making this option invalid.
D) $120,000
This option is incorrect as well. If the market value were $120,000, the expected operating income would need to be $14,400 ($120,000 x 0.12), which is higher than the estimated operating income of $12,000, thus disqualifying this option.
Conclusion
The correct answer is $100,000, as it directly results from the proper application of the formula for market value based on the provided operating income and desired rate of return. All other options fail to align with the given operating income, demonstrating that the calculated market value of $100,000 is accurate and definitive.