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Noi calculation investopedia6/15/2023 ![]() Though the net operating income concept is most commonly applied to real estate, it can be used anywhere, usually under the alternative name of earnings before interest and taxes (EBIT). Here is the formula: PV C / R Where: PV Present value C Amount of continuous cash payment r Interest rate or yield Example Calculate the PV of a Constant Perpetuity Company Rich pays 2 in dividends annually and estimates that they will pay the dividends indefinitely. The results of this analysis are subject to manipulation, since a property owner could elect to accelerate or defer certain expenditures, thereby altering the amount of net operating income. Capital expenditures are not included in the formulation of operating expenses. ![]() ![]() Expenses not included in the operating expenses category include income taxes and interest expense. The operating expenses associated with real estate include janitorial expenses, property insurance, property management fees, property taxes, repairs and maintenance, and utilities. The revenues associated with real estate include facility rental, laundry proceeds, parking fees, service charges, and vending proceeds. The calculation of net operating income is to subtract all operating expenses from the revenues generated by a specific property. A high net operating income figure should result in a higher property valuation. A net operating income analysis is developed by prospective investors as part of their formulation of the value to place on a property. It is used to examine the underlying cash flows of an investment before the effects of taxes and financing costs are considered. Net operating income is a measure of the profitability of a real estate investment.
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