Capitalization Rate Calculation

A

To determine the capitalization rate used by the analysis to assess the property at $2,560,000, we can use the formula:

Capitalization Rate = Net Operating Income / Property Value

The Net Operating Income (NOI) can be calculated by subtracting the annual operating expenses and taxes, as well as the annual vacancy and collection losses, from the gross potential rental income.

NOI = Gross Potential Rental Income - Operating Expenses and Taxes - Vacancy and Collection Losses

Given: Gross Potential Rental Income = $596,000 Operating Expenses and Taxes = $178,800 Vacancy and Collection Losses = $89,400

Substituting the values, we get: NOI = $596,000 - $178,800 - $89,400 = $327,800

Now, we can calculate the capitalization rate using the formula mentioned earlier:

Capitalization Rate = NOI / Property Value

Given: Property Value = $2,560,000 NOI = $327,800

Substituting the values, we get: Capitalization Rate = $327,800 / $2,560,000 = 0.12796875 (rounded to 6 decimal places)

Since the provided answers have limited decimal places, we can round the capitalization rate to the nearest four decimal places, which gives us 0.1280. Therefore, the correct answer would be:

A. 0.128