Ch.19-Test Problems-pg519

Ch.19-Test Problems-pg519 - a investment value 7 An...

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Chapter 19: Investment Decisions: NPV and IRR Robb Page 20-Apr-2010 FIN 497: Real Estate Principles Professor Clements Test Problems – page 519. 1. A real estate investment is available at an initial cash outlay of \$10,000, and is expected to yield cash flows of \$3,343.81 per year for five years. The internal rate of return (IRR) is approximately: b) 20 percent. 2. The net present value of an acquisition is equal to: b) the present value of expected future cash flows, less the initial cash outlay. 3. Present value: b) is the value now of all net benefits that are expected to be received in the future. 4. The internal rate of return equation incorporates: d) initial cash outflow and inflow, and future cash outflow and inflow. 5. The purchase price that will yield an investor the lowest acceptable rate of return: a) is the property’s investment value to that investor. 6. What term best describes the maximum price a buyer is willing to pay for a property?

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Unformatted text preview: a) investment value 7. An income-producing property is priced at \$600,000 and is expected to generate the following after-tax cash flows: Year-1: \$42,000; Year-2: \$44,000; Year-3: \$45,000; Year-4: \$50,000; and Year-5: \$650,000. Would an investor with a required after-tax rate of return of 15 percent be wise to invest at the current price? b) No, the NPV is -\$148,867. 1 Chapter 19: Investment Decisions: NPV and IRR 8. As a general rule, using financial leverage: b) increases risk to the equity investor. 9. What is the IRR, assuming an industrial building can be purchased for \$250,000 and is expected to yield cash flows of \$18,000 for each of the next five years and be sold at the end of the fifth year for \$280,000? c) 9.20% 10. Which of the following is the least true? c) After-tax discount rates are less than discount rates used to value before-tax cash flows. 2...
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This note was uploaded on 04/25/2010 for the course FIN 497 taught by Professor Clements during the Spring '10 term at University of Missouri-Kansas City .

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Ch.19-Test Problems-pg519 - a investment value 7 An...

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