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21 October, 07:08

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) ?

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  1. 21 October, 10:19
    0
    Current value = Net operating income

    Capitalization rate

    = $812,000

    0.0935

    = $8,684,492

    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.
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