Ch.18-Test Problems-pg499 - What will be the propertys...

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Chapter 18: Investment Decisions: Ratios Robb Page 15-Apr-2010 FIN 497: Real Estate Principles Professor Clements Test Problems – page 499. 1. Income multipliers: a) Are useful as a preliminary analysis tool to weed out obviously unacceptable investment opportunities. 2. The overall capitalization rate calculated on a potential acquisition: a) is the reciprocal of the net income multiplier. 3. The operating expense ratio: c) expresses operating expenses as a percent of effective gross income. 4. The equity dividend rate: b) expresses before-tax cash flow as a percent of the required equity cash outlay. 5. The ratio analysis: d) serves as an initial evaluation of the adequacy of an investment’s cash flow. 6. Assume a retail shopping center can be purchased for $5.5 million. The center’s first year NOI is expected to be $489,500. A $4,000,000 loan has been requested. The loan carries a 9.25% fixed contract rate, amortized monthly over 25 years with a 7-year term.
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Unformatted text preview: What will be the propertys (annual) debt coverage ratio in the first year of operations? b) 1.19 7. Which of the following is not an operating expense associated with income producing (commercial) property? a) debt service 1 Chapter 18: Investment Decisions: Ratios Use the following information to answer questions 8 and 9 You are considering purchasing an office building for $2,500,000. You expect the Potential Gross Income (PGI) in the first year to be $450,000; Vacancy and Collection losses (VC) to be 9% of PGI; and Operating Expenses (OE) to be 42% of Effective Gross Income (EGI). 8. What is the implied first year overall capitalization rate? a) 9.5 percent 9. What is the effective gross income multiplier? b) 6.11 10. Given the following information, what is the required equity down payment? Acquisition price: $800,000 Loan-to-value ratio: 75% Up-front financing cost: 3% c) $218,000 2...
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Ch.18-Test Problems-pg499 - What will be the propertys...

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