Question

If the capitalization rate on a building that produces a $20,000 annual income is 10 percent, what is the estimated value of the building?

Answer 1

Answer:

Value of building = $200,000

Explanation:

Provided capitalization rate = 10%

Annual income = $20,000

Estimated value of asset = $\frac{Annual\ Income}{Capitalization\ Rate}$

Since, all the information related to variables used in calculating value are provided we can compute the value of building.

Value of building = $\frac{20,000}{0.10}$ = $200,000