Real Estate week 5

Wer ins tr uc tor ex planation points

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Unformatted text preview: r epl acement cost i s nor mal l y used i n the cost appr oach to val ue. Comments : 11. Q ues tion : Student Ans wer : 0 of 2 (TCO 7) Capi tal i zati on r ates wi l l di f f er f r om yi el d r ates when the i ncome i s expected to __________ over ti me. A. stay the sam e B. decr ease C. i ncr ease Both B and C Ins tr uc tor Ex planation: Points Rec eiv ed: Chapter 10, Pages 302, 305, 318­321 Capi tal i zati on r ates wi l l di f f er f r om yi el d r ates when i ncome i s expected to i ncr ease and decr ease over ti me. Comments : 12. Q ues tion : Student Ans wer : 2 of 2 (TCO 7) Consi der a bui l di ng wi th a ver y l ong economi c l i f e. Assume at the end of year 6, NOI wi l l be $80,000 as i s expected to gr ow at a r ate of 2 per cent per year . You company’s r equi r ed r ate of r etur n i s 12%. As par t of your anal ysi s, you must cal cul ate the r ever si on val ue (REV) at the end of year 5, whi ch woul d be ________. $571,429 $666,667 $800,000 $4,000,000 Ins tr uc tor Ex planation: Points Rec eiv ed: Comments : 13. Q ues tion : Chapter 10, Pages 308­309 Rever si on val ue at the end of year “n” = NOI (n + 1) / (r – g) = $80,000 / (.12 ­ .02) Student Ans wer : 2 of 2 (TCO 7) Whi ch of the f ol l owi ng statements r egar di ng equi ty i s TRU E? The am ount of equi ty an i nvestor has i n a pr oper ty m ay change over ti me i f the pr oper ty val ue and l oan bal ance changes. The am ount of equi ty an i nvestor has i n a pr oper ty depends on the val ue of the equi ty the i nvestor has i n hi s or her other i nvestments. https://f r a me se t.ne xt.e c olle ge .c om/( NEXT( 41c 927c 49b) ) /Ma in/AllMode /Fr a me se tHybr id/Ge ne r a lFr a me se tVie w.e d 4/5 8/12/13 Gr a de book De ta il The outstandi ng bal ance on l oan on the pr oper ty does not Ins tr uc tor Ex planation: Points Rec eiv ed: af f ect the amount of equi ty an i nvestor has i n the pr oper ty. Al l of the above Chapter 11, Page 339 Equi ty that an i nvestor has i n a pr oper ty can change over ti me i f the pr oper ty and l oan bal ance changes. Comments : 14. Q ues tion : Student Ans wer : 0 of 2 (TCO 7) A pr oper ty that pr oduces a l evel of NOI of $200,000 per year i s expected to be sol d i n year 5 f or $2,000,000. If the pr oper ty was pur chased f or $2,000,000, what i s the IRR usi ng the oper ati ng i ncome onl y? 10.0% 19.0% 20% none of the above Ins tr uc tor Ex planation: Points Rec eiv ed: Chapter 11, Page 358 The IRR i s the r ate that makes the pr esent val ue of the pr ojected cash f l ows equal to the i ni ti al i nvestment. Excel or a f i nanci al cal cul ator can be used wher e the i nvestment i s ­$2,000,000 and cash f l ows f or each year f or f i ve year s i s $200,000. Comments : 15. Q ues tion : Student Ans wer : 2 of 2 (TCO 7) A pr oper ty that pr oduces an annual NOI of $90,000 was pur chased f or $1,200,000. Debt ser vi ce f or the year was $95,000 of whi ch $93,400 was i nter est and the r emai nder was pr i nci pal . Annual depr eci ati on i s $38,095. What i s the taxabl e i ncome? $5,000 ­$3,400 ­ $41,496 ­ $43,096 Ins tr uc tor Ex planation: Points Rec eiv ed: Chapter 11, Pages 363­364 Taxabl e i ncome = NOI ­ Inter est – Annual Depr eci ati on. 2 of 2 Comments : * Times ar e dis play ed in ( G MT­ 07:00) Mountain Time ( US & Canada) https://f r a me se t.ne xt.e c olle ge .c om/( NEXT( 41c 927c 49b) ) /Ma in/AllMode /Fr a me se tHybr id/Ge ne r a lFr a me se tVie w.e d 5/5...
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