How to Calculate capitalised value of the building with example?

A property consisting of land and building fetches a rent of Rs. 1000/- per month. The building is constructed in the year 1966. Total life of building is estimated to be 80 years. Assume 30% outgoings. Calculate capitalised value of the building assuming investment at 8% security and allowing redemption of capital at 5%.

Data given:

Monthly rent = Rs. 1000/-

Life of building n = 80 years

Total outgoings = 30% of gross rent

Interest on capital, (i) = 8%

Interest on sinking fund, (s) = 5% or redemption of capital

To find – Capitalised value ‘C’

                  C   =    Net income X years purchase (y_p)

(a)             Net income = gross income – outgoings yearly.

                       = 1000 x 12 – (30/100) x 1000 x 12

                       = 0.7 x 1000 x 12

                       = Rs. 8400 per year.

(b)            Year purchase y_p  = (1/i+s)

Where ‘S’  = S/(1 + S)ⁿ – 1

                   = .05/(1 + 0.5)⁸⁰ – 1 = 0.001

Therefor y_p   = 1/0.08+0.001 = 12.34

Therefor Capitalised value C = 8400 x 12.34 = Rs. 1,03,656.