Given the following information, calculate the going-out cap rate. Estimated holding period: 5 years, NOI for year 1: $120,000, NOI for year 5: $150,000, NOI for year 6: $155,250, Expected sale price at end of year 5: $1,350,000.
A) 8.9%
B) 11.1%
C) 11.5%
D) 11.9%

Question

Quizplus · Accepted Answer

To calculate the going-out cap rate, we need to use the formula:

Going-out cap rate = (Net Operating Income (NOI) in year 5 / Expected sale price at end of year 5) + estimated annual NOI growth rate

The estimated annual NOI growth rate can be calculated as:

Estimated annual NOI growth rate = ((NOI in year 6 / NOI in year 5) - 1)

Plugging in the given values:

Estimated annual NOI growth rate = ((155,250 / 150,000) - 1) = 3.5%

Going-out cap rate = (150,000 / 1,350,000) + 3.5% = 0.1115 or 11.15%

Therefore, the best choice is C.

Given the Following Information, Calculate the Going-Out Cap Rate