Consider a building with a very long economic life.Assume at the end of year 6,NOI will be $80,000 and is expected to grow at a rate of 2 percent per year.Your company's required rate of return is 12 percent.As part of your analysis,you must calculate the reversion value (REV)at the end of year 5,which would be:

Question

Quizplus · Accepted Answer

To calculate the reversion value, we need to estimate the expected NOI at the end of year 6 and divide it by the capitalization rate, which is the required rate of return minus the expected growth rate.

The expected NOI at the end of year 6 is already given as $80,000.

The capitalization rate is 12% - 2% = 10%.

So, the reversion value (REV) can be calculated as follows:

REV = $80,000 / 0.10

REV = $800,000

Therefore, the best choice is C, $800,000.

Consider a Building with a Very Long Economic Life