Q1. A Colorado investor is analyzing a mixed-use commercial property in Boulder with an annual net operating income (NOI) of $150,000. The local market capitalization rate is 8%. The investor also expects annual operating expenses to increase by 3% due to inflation. What is the best estimate of the property’s value using income capitalization, considering the inflation adjustment?

• ○$1,875,000, calculated by dividing NOI by the cap rate without adjusting for inflation.
• ○$1,750,000, by adjusting NOI downward for inflation before dividing by the cap rate.
• ○$1,875,000, by dividing the current NOI by the cap rate, since inflation affects future income, not current NOI.
• ○$1,950,000, by increasing NOI by 3% and then dividing by the cap rate.