Basic Real Estate Appraisal Quiz, 9th Edition
Student’s Name
Date
1. A property produces a net operating income of $20,000 in year 1, $30,000 in year 2, and $45,000
in years 3 to 6. The resale price is estimated using a terminal capitalization rate of 8.5% applied to
the sixth year NOI. What is the value of the property using a 10.5% discount rate?
Year
Cash Flow
/ Discount rate
PV
1
1
$20,000
1/1.105 or .905
$18,100
2
$30,000
1/1.1052 or .819
$24,570
3
3
$45,000
1/1.105 or .741
$33,352
4
$45,000
1/1.1054 or .671
$30,183
5
5
$45,000
1/1.105 or .607
106,205
6
$45,000 +
NOI6/ 8.5% ≈ 529,412 574,412 x .607 ≈
348,668
454,873
A. $502,634
B. $424,337
C. $468,892
D. $454,872
2. Assume a property produces a level NOI of $75,000 per year. The property value is expected to
increase by a total of 12 percent over a 4-year holding period. A 10 percent discount rate is
considered appropriate. What is the indicated property value?
A. $1,012,146
B. $ 595,917
C. $1,001,443
D. $ 599,482
1)
.10
≈ .2155
-1
1.104
2) .10 – (.12 * .2155) ≈ .0741
3) $ 75,000 / .0741 ≈ $ 1,012,146