Answer: The capitalization rate is 12.5 %
Step-by-step explanation:
To calculate the capitalization rate, we use the formula:
![\text{Rate of capitalization}=\frac{\text{Income}}{\text{Value of property}}* 100](https://img.qammunity.org/2021/formulas/business/high-school/wt4wx1jnqvad5ukl0xmyx6brmn82mcwwc6.png)
We are given:
Net operating income = $ 43,750
Value of property = $ 350,000
Putting values in above equation, we get:
![\text{Rate of capitalization}=(43,750)/(350,000)* 100\\\\\text{Rate of capitalization}=12.5\%](https://img.qammunity.org/2021/formulas/business/high-school/vyoxucz81a2gi8doz90227gg8mxy1doelt.png)
Hence, the capitalization rate is 12.5 %