question archive A property produces a first year NOI of $100,000 which is expected to grow by 2% per year
A property produces a first year NOI of $100,000 which is expected to grow by 2% per year
Subject:FinancePrice:2.86 Bought9
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 sold in year 10, what is the expected sale price based on terminal capitalization rate of 10.25% applied to the eleventh year NOI? $1,283,152 $1,189,263 $1,317,832 $1,257.992
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Solution
Here first the NOI will be calculated for 11th year
Applying the compounded growth formula
NOI in 11th year=NOI year 1*(1+Growth rate NOI)^Number of years for growth
Putting values
NOI in 11th year=100000*(1+2%)^10
Solving
NOI in 11th year=121899.4
Capitalization rate formula=NOI/Expected sale price or market value of asset
Putting values
10.25%=121899.4/Expected sale price
Solving we get
Expected sale price=$1,189,263
