Suppose that you are attempting to value an income producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 11.44%. If the projected first year net operating income (NOI) for the subject property is $44,500, what is the indicated value of the subject using direct capitalization?
A) $49,590.80
B) $50,225.73
C) $388,986.00
D) $509,080.00

Question

Quizplus · Accepted Answer

Using the direct capitalization approach, we can calculate the value of the subject property by dividing the NOI by the overall capitalization rate. 
Value = NOI / Overall Cap Rate

Substituting the given values:
Value = $44,500 / 0.1144 
Value = $388,986.00

Therefore, the indicated value of the subject property using direct capitalization is $388,986.00, which is choice C.

Suppose That You Are Attempting to Value an Income Producing