Question
Download Solution PDFCalculate the capital value of a building whose rent is Rs. 10,000 per annum, inclusive of all taxes. Outgoings are 18% of the gross rent, and the expected rate of return is 9% with a 60-year life of the building.
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFConcept:
Valuation:
- It is the technique of estimation or determining the fair price or value of the property such as building, a factory, other engineering structures of various types, land, etc.
- By valuation, the present value of a property is defined.
Rental Method of Valuation:
- The capitalized value of the property is worked out under
Net Rent(per annum) = Gross Rent(per annum) - Outgoings
Capitalized Value = Net Rent x Year's Purchase
Year's Purchase(YP): It is defined as the capital sum required to be invested in order to receive an annuity of Re 1.00 at a certain rate of interest.
Where i = rate of interest, and
S = Sinking fund coefficient
Given:
Gross Rent = 10,000 per annum
rate of interest, i = 9% = 0.09
Year's Purchase(YP) = 1/ I = 1/0.09
Calculation:
Outgoings = 18% of the gross rent = 10,000 x 0.18 = 1800
Net Rent = Gross Rent - Outgoings = 10000 - 1800 = 8200
Year's Purchase(YP)
i = 9% = 10
Capitalized Value = Net Rent x Year's Purchase
= 8200 x 1/0.09 = 91,111.11/-
Capitalized Value = Rs 91,111(Ans)
Last updated on May 28, 2025
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