• First year PGI of an office building $50,000 and increases by 4% annually.
• The vacancy and collection is 2% of PGI
• The operating expense is 40% of EGI for every year.
• Let us assume that the holding period for comparable properties is 3 years.

Data for five comparable income properties that sold recently are shown in the accompanying table.

Property NOI Sale Price Overall Rate

A AA $57,800 $566,600 0.1020

B $49,200 $496,900 0.0990

C 63,000 $630,000 0.1000

D $56,000 $538,500 0.1040

E $58,500 $600,000 0.0975

What is the indicated cap rate R0.?

A. 50.05%

B. 12.05%

C. 0.05%

D. -10.05%

E. 10.05%