Question

If a hotel has an annual net operating income of $812,000 at a 9.35% cap rate, what is its current value (to the nearest thousand)?

Answer 1

Current value = Net operating income

Capitalization rate

= $812,000

0.0935

= $8,684,492

Step-by-step explanation:

This is consiste nt with the net operating income approach to capital structure that holds that value of a company is the capitalization of net operating income at the capitalization rate of a company. Thus, the division of net operating income by the capitalization rate gives the current value.