End of Chapter 14 Questions and Answers

End of Chapter 14 Questions and Answers - End of Chapter 14...

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End of Chapter 14 Questions and Answers 1. Can a property have a break even point above 1.0? What would this imply? Answer: No, it would imply greater than 100% occupancy. 2. What is the difference between the Net Operating Income and the Before-tax Cash Flow? Answer: Before tax cash flow is after debt service while the NOI is prior to debt service. The NOI is the free and clear return on an unlevered property. 3. Consider the projection of the reversion value in a multi-year proforma. a) What should be the typical expected relationship between the going-in cap rate and the going-out (“reversion value”) cap rate projected for the resale of the property at the end of the expected holding period (i.e., should you usually expect the going-out to be less than, equal, or greater than the going-in)? b) Why? Answer: The going in cap rate should be higher than the going out cap rate as the property is likely to wear out a little and higher risk of uncertain repair induces a higher cap rate. c) How would your answer change if you project capital improvements during the holding period? Answer: Capital improvements are not operating expenses and hence NOI remains as it is yet the upside rent should increase with the new investment. The going-out cap rate should increase if these capital improvements are successful in producing better rental
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This note was uploaded on 02/07/2012 for the course FIN 4380 taught by Professor Staff during the Spring '08 term at Texas State.

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End of Chapter 14 Questions and Answers - End of Chapter 14...

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