Utilizing the cap rate method, what will be the sale price for the hotel in year three?

If we look at the capitalization method of valuation section at the beginning of this chapter, it says that sale price can be determined by dividing the prior or trailing twelve months’ cash flow by the market cap rate to arrive at the asset’s approximate market value. We must identify the variables in the calculation, which are the cap rate (10%) and the prior twelve months’ cash flow ($750,000). Now the calculation is simple. Divide $750,000 by 10%, and the sale price, as determined by the cap rate approach, would be $7,500,000 in year 3.