Question

Analysis of a subject property’s pro forma reveals that its fifth-year net operating income (NOI) is projected to be $100,282 (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 and the going-out capitalization rate in year 5 to be 10%, determine the net sale proceeds the current owner of the property would receive if he were to sell the property at the end of year 5 and incur selling expenses that amounted to $58,300.

Answer 1

$974,604.60

Step-by-step explanation:

The computation is shown below:

= (Net operating income + Net operating income × projected rental growth rate) ÷ (going-out capitalization rate) - selling expenses incurred

= ($100,282 + $100,282 × 3%) ÷ (10%) - $58,300

= ($100,282 + $3,008.46) ÷ (10%) - $58,300

= ($103,290.46) ÷ (10%) - $58,300

= $974,604.60

The time period would be ignored