An income-producing property generates $72,000 annually and has $60,000 of applicable annual expenses.

The correct answer is C, $150,000.

First calculate net operating income:

$72,000 − $60,000 = $12,000

Next use the direct capitalization formula:

Value = NOI ÷ Capitalization Rate

$12,000 ÷ 0.08 = $150,000

Therefore, C is correct.

The capitalization rate reflects the relationship between a property ' s annual net operating income and its value:

Rate = NOI ÷ Value

Massachusetts Board appraisal guidance describes the income approach as particularly relevant to investment property. The appraiser calculates net income, considers appropriate operating expenses, vacancy and reserves, and then applies a capitalization rate derived from market evidence.

Candidates must use net, not gross, income. The property ' s total receipts are reduced by qualifying operating expenses before capitalization.

Debt service, income taxes, and depreciation for federal income-tax purposes are generally not standard operating-expense deductions in the conventional NOI calculation.

Study Guide Reference: Property Valuation and Appraisal — Income Approach; NOI and Capitalization Rate.