Question

An appraiser estimates that a property will produce NOI of $25,000 in perpetuity, ro is 11%, and the constant annual growth rate in NOI is 2.0 percent. What is the estimated property value?

Answer 1

Answer:

$277,778

Explanation:

Given that,

Net operating income (NOI) = $25,000 in perpetuity

ro = 11%

Constant annual growth rate in NOI = 2 percent

Therefore, the estimated property value is calculated as follows:

= Net operating income (NOI) ÷ (ro - Constant annual growth rate)

= $25,000 ÷ (11% - 2%)

= $25,000 ÷ 9%

= $25,000 ÷ 0.09

= $277,777.77 or $277,778