Under the Income Capitalization approach to valuing real estate, which of the following definitions for net operating income is not true?
a) Net operating income is measured after property taxes.
b) Net operating income is measured before income taxes but after interest expense.
c) Net operating income is measured before interest expense.
d) Net operating income is measured after capital expenditures.

The correct answer is: d)
When valuing an entire property, and not just the equity portion in the property, we have to discount all the cash flows that would be available not just to the property owner, but to the creditors as well. Therefore, net operating income is measured before any interest charges are deducted.


  1. How is market value determined in the real estate market?

    Learn how fair market value is determined during a real estate appraisal and how market values are really decided by professional ...
  2. The Chairman of Bright Star Life and Casual had a meeting with his broker this afternoon ...

    The correct answer is b) Insider trading would include information that is material and non-public. Certainly, a poor earnings ...
  3. Which statements about common shareholder rights are FALSE? I. A shareholder may ...

    The correct answer is a. I should be the the other way around: convertible bond holders can exchange their bonds for shares. ...
  4. If ABC Company had the following Income Statement figures, what is the Operating ...

    The correct answer is c): The operating margin is a very useful test of the efficiency of corporate management. Operating ...
  1. No results found.

You May Also Like

Hot Definitions
  1. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  2. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  3. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  4. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Capitalized Cost

    An expense that is added to the cost basis of a fixed asset on a company's balance sheet. Capitalized Costs are incurred ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!