Payton and Finley Davis run a real estate brokerage firm. They have just moved i

Question

Payton and Finley Davis run a real estate brokerage firm. They have just moved into a new building and want to add some outdoor digital signage to advertise the firm’s services. The sign they are considering has two display areas that can display two different images at the same time and costs $138,500. It is expected to have a useful life of 5 years. In an effort to recoup the cost of the sign, Payton and Finley will rent one display panel to other tenants in the building for $35,500 a year. Electricity to power the sign is expected to be $960 per year.

Calculate the annual net operating income generated by the new sign.

Explanation / Answer

Hi Dear Student !!

Following is a calculation of NOI

NOI= Operating Income - Operating Expenses

NOI = $35500 - $960 = $34540

You may get confused in Depericiation of Board but in case of Real Estate when we are asked to find out Net Operating Income then they want to know the net cash flows so Depriciation is not a Cash Expense thats why it does not comes under the purview of Operating Expense.

So only Rent will be covered by Operating Expense.

So the Final Answ would be - $ 34540

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