The capitalization method requires knowing the net operating income (NOI) and the appropriate cap rate. First, place the two numbers provided in the question into the cap rate formula.
$24,000 (NOI) = 12% (cap rate) x P (price)
Next, divide the NOI by the cap rate.
$24,000 / 0.12 = P
P = $200,000
Thus, the buyer is to pay no more than $200,000 to yield a 12% rate of return.