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VashaNatasha [74]
3 years ago
10

A property produces a first year NOI of $100,000 which is expected to grow by 2% per year. If the property is expected to be sol

d in year 10, what is the expected sale price based on a terminal capitalization rate of 9.5% applied to the eleventh year NOI?
Business
1 answer:
Ahat [919]3 years ago
5 0

Answer:

the expected sale price based on a terminal capitalization rate is $1283152

Explanation:

The NOI (net operating income) is used in the estimation of the profitability in real estate investment.

The first year NOI of a property is $100000 and it is expected to grow by 2% (0.02) per year and to be sold in next ten years (n = 10 years).

r = 100% + 2% = 102% = 1.02

After ten years, the NOI = first year NOI × r^n = $100000 × (1.02)¹⁰ = $121899.442

The terminal capitalization rate is 9.5%. Therefore the expected sale price based on a terminal capitalization rate = $121899.442 / 9.5% = $121899.442 / 0.095 = $1283152

the expected sale price based on a terminal capitalization rate is $1283152

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