Suppose that examination of a pro forma reveals that the fifth-year net operating income (NOI) for an income-producing property that you are analyzing is $913,058 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 3% per year, determine the projected sale price of the property at the end of year 5 if the going-out capitalization rate is 8%.

Question

Alisson Baker

Business

10 August, 01:49

Suppose that examination of a pro forma reveals that the fifth-year net operating income (NOI) for an income-producing property that you are analyzing is $913,058 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 3% per year, determine the projected sale price of the property at the end of year 5 if the going-out capitalization rate is 8%.

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Wyatt · Answer 1

The project sale price at the end of year 5 is $ 11,755,622

Explanation:

Solution

Recall that:

Analyzing an income producing property is = $913,058

The rental rate of growth for the property to be is = 3%

At the end of the year 5, the projected sale price of the property if going g-out capitalization is = 8%

Then

we find the projected sales price is given below:

= ($ 913,058 x 1.03) / 0.08

= $940,449.74/0.08

= $ 11,755,622