21. Estimate the market value of the shopping center described below using the d
ID: 2722435 • Letter: 2
Question
21. Estimate the market value of the shopping center described below using the direct capitalization approach to valuation.
Property type: Drug store-anchored shopping center
Asking price: $20 million
Leasable space: 75,000 square feet
Average rent: $30 per square foot per year
Other income: $1 per square foot per year
Annual rent growth: 3% per year
Annual other income growth: 5% per year
Vacancy and collection losses: 7.5% of potential gross income
Capital expenditures: 2% of effective gross income
Operating expenses: 40% of effective gross income
Discount rate: 15%
Going-in cap rate: 7%
Going-out cap rate: 7.5%
Selling expenses: 3% of transaction amount
Please show how to solve using a BA II plus calculator
Explanation / Answer
Texas BAII Input CF Year--> 0 1 Cash flow Potential Gross Income(PGI) 2317500.00 (=75000*30*1.03) (=CF0 (-Vacancy and collection losses -173812.50 (=7.5%*PGI) (=C01 Effective Gross Income(EGI)= 2143687.50 (+Other Income 78750.00 (=75000*1*1.05) (=C02 Gross Operating Income= 2222437.50 (-Operating expenses -857475.00 (=40%*EGI) (=C03 Net Operating Income (NOI1)= 1364962.50 then press NPV input I=0 and down arrow to Get NPV(=NOI1) by pressing CPT.NPV is NOI1 only Going-in cap rate 7% Market value(=NOI/Going-in cap rate) $ 1,94,99,464.29 For Texas BAII plus just calculate the NOI1 as above by inputing the numbers Then divide the value of NOI1 by 7% to get the value.
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