The net operating income of the downtown office building is $34,786 per year. If the capitalization rate is 7%, what is the appraised value?

The net operating income of the downtown office building is $34,786 per year. If the capitalization rate is 7%, what is the appraised value?

• A. $496,942
• B. $353,000
• C. $492,000
• D. $510,000

Answer: (A)

Direct capitalization estimates value by dividing the annual net operating income by the capitalization rate. Convert 7% to 0.07 and compute: 34,786 ÷ 0.07 = 496,942.857..., about $496,943. The amount that matches this calculation (when rounded) is the option listing $496,942. The other numbers would come from a different NOI or cap rate, so they don’t fit the given data.

Direct capitalization estimates value by dividing the annual net operating income by the capitalization rate. Convert 7% to 0.07 and compute: 34,786 ÷ 0.07 = 496,942.857..., about $496,943. The amount that matches this calculation (when rounded) is the option listing $496,942. The other numbers would come from a different NOI or cap rate, so they don’t fit the given data.