What calculation represents capitalization based on net income of $964,210 at a rate of 8.4%?

What calculation represents capitalization based on net income of $964,210 at a rate of 8.4%?

• A. 10,897,136
• B. 11,478,670
• C. 9,000,000
• D. 12,345,678

Answer: (B)

To determine the capitalization value based on net income, the capitalization rate is used in the following formula: Capitalization Value = Net Income / Capitalization Rate. In this case, the net income is $964,210, and the capitalization rate is 8.4%, which needs to be expressed as a decimal for the calculation. Consequently, 8.4% becomes 0.084. Now applying these values to the formula: Capitalization Value = $964,210 / 0.084 = $11,478,670. This calculation reveals the total value of the property based on the income it generates at the specified rate of return. Each component (net income and capitalization rate) plays a crucial role in accurately assessing the property's worth using the income approach.

To determine the capitalization value based on net income, the capitalization rate is used in the following formula:

Capitalization Value = Net Income / Capitalization Rate.

In this case, the net income is $964,210, and the capitalization rate is 8.4%, which needs to be expressed as a decimal for the calculation. Consequently, 8.4% becomes 0.084.

Now applying these values to the formula:

Capitalization Value = $964,210 / 0.084 = $11,478,670.

This calculation reveals the total value of the property based on the income it generates at the specified rate of return. Each component (net income and capitalization rate) plays a crucial role in accurately assessing the property's worth using the income approach.