Question

If a property will produce net cash flow that grows at a rate of 1.5% per year in perpetuity, and the opportunity cost of capital is 12%, then what is the "cap rate" (net cash flow / property value) for the property?

(a) 8%.
(b) 10%.
(c) 10.5%.
(d) 12%.

Answer 1

(c) 10.5%.

Step-by-step explanation:

Calculation to determine what is the "cap rate

Using this formula

x 1/r-g

Let plug in the formula

1/12-1.5