A rental property is providing an acceptable market rate of return of 13%.You expect next year's rent to be $1.0 million and that rent is expected to grow at 3% per year forever.What is the current value of the property?

Question

Quizplus · Accepted Answer

The formula for calculating the current value of a property based on its expected net rental income is:
Property value = Net rental income / Required rate of return

Using this formula, we can calculate the current value of the property as:
Property value = $1.0 million / (13% - 3%)
              = $1.0 million / 10%
              = $10.0 million

Therefore, the best choice is B.

A Rental Property Is Providing an Acceptable Market Rate of Return