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 a terminal capitalization rate of 9.5% applied to the eleventh year NOI?

Question

Quizplus · Accepted Answer

First, we need to calculate the 11th year NOI (Net Operating Income) using the 2% growth rate:

Year 1 NOI = $100,000

Year 2 NOI = $100,000 x 1.02 = $102,000

Year 3 NOI = $102,000 x 1.02 = $104,040

...

Year 10 NOI = $121,899

Year 11 NOI = $121,899 x 1.02 = $124,336

Next, we need to calculate the property value based on the terminal cap rate:

Sale price = Year 11 NOI / Terminal cap rate

Sale price = $124,336 / 0.095

Sale price = $1,305,689

Therefore, the best choice is 
Answer: B (Closest to $1,305,689 within the options given)

A Property Produces a First Year NOI of $100,000 Which