Question 1

Given the following information,calculate the net income multiplier for this property.First-year NOI: $18,750,Acquisition price: $150,000,Equity Investment: 20%.

Accepted Answer

A) 0.1 
B) 1.6 
C) 8.0 
D) 12.5 
A) 0.1 
B) 1.6 
C) 8.0 
D) 12.5 C

Question 2

Given the following information,calculate the debt coverage ratio for this investment.Potential gross income: $120,000,Vacancy rate: 9%,Net operating income: $57,900,Operating expenses: $51,300,Acquisition Price: $520,000,Debt service: $40,000.

Accepted Answer

A) 0.69 
B) 1.45 
C) 2.73 
D) 8.29 
A) 0.69 
B) 1.45 
C) 2.73 
D) 8.29 B

Question 3

Given the following information,calculate the equity dividend rate for this investment.First-year NOI: $18,750,Before-tax cash flow: $11,440,Acquisition price: $520,000,Equity Investment: 20%.

Accepted Answer

A) 2.2% 
B) 3.6% 
C) 11.0% 
D) 18.02% 
A) 2.2% 
B) 3.6% 
C) 11.0% 
D) 18.02% C

Question 4

Given the following information,calculate the total amount of annual operating expenses for this income-producing property.Lawn care: $10,000,Property taxes: $24,000,Maintenance: $35,000,Janitorial: $25,000,Security: $32,000,Debt service: $145,000.

Accepted Answer

A) $102,000 
B) $126,000 
C) $247,000 
D) $271,000 
A) $102,000 
B) $126,000 
C) $247,000 
D) $271,000

Question 5

Given the following information,calculate the operating expense ratio for this property.Potential gross income: $120,000,Vacancy rate: 9%,Net operating income: $57,900,Operating expenses: $51,300.

Accepted Answer

A) 34% 
B) 43% 
C) 47% 
D) 53% 
A) 34% 
B) 43% 
C) 47% 
D) 53%

Question 6

In making single-asset real estate investment decisions,the first pass often involves calculating a series of returns,ratios,and multipliers.Which of the following is often cited as a limitation associated with this type of analysis?

Accepted Answer

A) They are difficult to calculate 
B) They are complex to understand 
C) They fail to incorporate cash flows beyond the first year of the analysis 
D) They are rarely used by industry professionals 
A) They are difficult to calculate 
B) They are complex to understand 
C) They fail to incorporate cash flows beyond the first year of the analysis 
D) They are rarely used by industry professionals

Question 7

Given the following information,calculate the going-in capitalization rate for the specific property.First-year NOI: $18,750,Acquisition price: $150,000,Equity Investment: 20%.

Accepted Answer

A) 2.5% 
B) 12.5% 
C) 15.6% 
D) 62.5% 
A) 2.5% 
B) 12.5% 
C) 15.6% 
D) 62.5%

Question 8

Given the following information,calculate the loan-to-value ratio for this property.Loan amount: $450,000,Interest rate: 7.5%,Acquisition price: $550,000

Accepted Answer

A) 0.18 
B) 0.82 
C) 0.99 
D) 1.22 
A) 0.18 
B) 0.82 
C) 0.99 
D) 1.22

Question 9

In an analogy to the stock market,the net operating income of a property can be viewed as which of the following?

Accepted Answer

A) Annual dividend expected to be produced by the property 
B) Annual return on the value of the property 
C) Market value of the property 
D) Price-earnings ratio of the property 
A) Annual dividend expected to be produced by the property 
B) Annual return on the value of the property 
C) Market value of the property 
D) Price-earnings ratio of the property

Question 10

Profitability ratios,income multipliers,and financial risk ratios can be used to provide a quick assessment of a property's relative value.Which of the following ratios measures the overall income-producing ability of the property?

Accepted Answer

A) Capitalization rate 
B) Equity dividend rate 
C) Debt coverage ratio 
D) Operating expense ratio 
A) Capitalization rate 
B) Equity dividend rate 
C) Debt coverage ratio 
D) Operating expense ratio

Question 11

Helpful in assessing the risk of lending to investors for particular projects,which of the following calculations measures the income-producing ability of the property to meet operating and financial obligations?

Accepted Answer

A) Profitability ratios 
B) Income multipliers 
C) Financial risk ratios 
D) Income tax multipliers 
A) Profitability ratios 
B) Income multipliers 
C) Financial risk ratios 
D) Income tax multipliers

Question 12

The loan-to-value ratio measures the percentage of the acquisition price (or current market value)encumbered by debt.To protect their invested capital in the event that property values do fall,commercial mortgage lenders generally require that the senior mortgage not exceed approximately what percentage of the acquisition costs?

Accepted Answer

A) 60% 
B) 70% 
C) 80% 
D) 90% 
A) 60% 
B) 70% 
C) 80% 
D) 90%

Question 13

In determining a property's before-tax cash flow from operations (BTCF)and net operating income (NOI),it is important to understand how each accounts for the use of financial leverage in its calculation.Which of the following statements is true in regards to how these two measures account for the use of financial leverage?

Accepted Answer

A) BTCF and NOI are both levered cash flows 
B) BTCF is an unlevered cash flow,while NOI is a levered cash flow 
C) BTCF is a levered cash flow,while NOI is an unlevered cash flow 
D) BTCF and NOI are both unlevered cash flows 
A) BTCF and NOI are both levered cash flows 
B) BTCF is an unlevered cash flow,while NOI is a levered cash flow 
C) BTCF is a levered cash flow,while NOI is an unlevered cash flow 
D) BTCF and NOI are both unlevered cash flows

Question 14

Given the following information,calculate the cash down payment required to purchase the specific property.Purchase Price: $500,000,Loan Amount: 80% of purchase price,Up-front financing costs: 2.5% of loan amount.

Accepted Answer

A) $90,000 
B) $110,000 
C) $136,250 
D) $200,000 
A) $90,000 
B) $110,000 
C) $136,250 
D) $200,000

Question 15

Given the following information,calculate the effective gross income multiplier for the specific investment.Effective gross income: $49,500,First-year NOI: $18,750,Acquisition price: $520,000,Equity Investment: 20%.

Accepted Answer

A) 0.036 
B) 0.095 
C) 10.5 
D) 27.7 
A) 0.036 
B) 0.095 
C) 10.5 
D) 27.7

Question 16

In calculating the net operating income (NOI)of a property,the "above-line" treatment of capital expenditures implies:

Accepted Answer

A) capital expenditures are excluded from the calculation of NOI. 
B) capital expenditures are included in the calculation of NOI. 
C) capital expenditures are set equal to NOI. 
D) capital expenditures are divided by NOI. 
A) capital expenditures are excluded from the calculation of NOI. 
B) capital expenditures are included in the calculation of NOI. 
C) capital expenditures are set equal to NOI. 
D) capital expenditures are divided by NOI.

Question 17

Prior to determining the treatment of capital expenditures in the calculation of NOI,it is important to distinguish these costs from operating expenses.In contrast to operating expenses,capital expenditures:

Accepted Answer

A) add to the market value of the property. 
B) are deductible for tax purposes in the year in which they are paid. 
C) are necessary to keep the property operating and competitive in its local market. 
D) may include minor repairs that do not add to the property's useful life. 
A) add to the market value of the property. 
B) are deductible for tax purposes in the year in which they are paid. 
C) are necessary to keep the property operating and competitive in its local market. 
D) may include minor repairs that do not add to the property's useful life.

Question 18

The key to meaningful valuations in real estate is to use defensible cash flow estimates.All of the following statements are true in regards to generating accurate cash flow estimates EXCEPT:

Accepted Answer

A) Investors should include only those sources of income and expenses that relate directly to the income producing ability of the property. 
B) Investors should only consider recent events,rather than long-term trends when evaluating revenue and expense items. 
C) Investors should obtain information about comparable properties whenever possible. 
D) Investors should take into consideration local zoning,land use,and environmental controls that may impact the future flow of funds. 
A) Investors should include only those sources of income and expenses that relate directly to the income producing ability of the property. 
B) Investors should only consider recent events,rather than long-term trends when evaluating revenue and expense items. 
C) Investors should obtain information about comparable properties whenever possible. 
D) Investors should take into consideration local zoning,land use,and environmental controls that may impact the future flow of funds.

Question 19

The measure of cash flow most relevant to investors in income-producing real estate is the after-tax cash flow (ATCF)from property operations.Therefore,it is important to know that the maximum federal income tax rate on individuals is currently:

Accepted Answer

A) 25% 
B) 30% 
C) 33% 
D) 35% 
A) 25% 
B) 30% 
C) 33% 
D) 35%

Question 20

The going-in capitalization rate can vary significantly by property quality.Which of the following classes of properties within a particular property type would be expected to have the highest cap rates?

Accepted Answer

A) Class A properties 
B) Class B properties 
C) Class C properties 
D) Cap rates would be equal across all classes within the same property type 
A) Class A properties 
B) Class B properties 
C) Class C properties 
D) Cap rates would be equal across all classes within the same property type

Exam 18: Investment Decisions: Ratios

Given the following information,calculate the net income multiplier for this property.First-year NOI: $18,750,Acquisition price: $150,000,Equity Investment: 20%.

Given the following information,calculate the debt coverage ratio for this investment.Potential gross income: $120,000,Vacancy rate: 9%,Net operating income: $57,900,Operating expenses: $51,300,Acquisition Price: $520,000,Debt service: $40,000.

Given the following information,calculate the equity dividend rate for this investment.First-year NOI: $18,750,Before-tax cash flow: $11,440,Acquisition price: $520,000,Equity Investment: 20%.

Given the following information,calculate the total amount of annual operating expenses for this income-producing property.Lawn care: $10,000,Property taxes: $24,000,Maintenance: $35,000,Janitorial: $25,000,Security: $32,000,Debt service: $145,000.

Given the following information,calculate the operating expense ratio for this property.Potential gross income: $120,000,Vacancy rate: 9%,Net operating income: $57,900,Operating expenses: $51,300.

In making single-asset real estate investment decisions,the first pass often involves calculating a series of returns,ratios,and multipliers.Which of the following is often cited as a limitation associated with this type of analysis?

Given the following information,calculate the going-in capitalization rate for the specific property.First-year NOI: $18,750,Acquisition price: $150,000,Equity Investment: 20%.

Given the following information,calculate the loan-to-value ratio for this property.Loan amount: $450,000,Interest rate: 7.5%,Acquisition price: $550,000

In an analogy to the stock market,the net operating income of a property can be viewed as which of the following?

Profitability ratios,income multipliers,and financial risk ratios can be used to provide a quick assessment of a property's relative value.Which of the following ratios measures the overall income-producing ability of the property?

Helpful in assessing the risk of lending to investors for particular projects,which of the following calculations measures the income-producing ability of the property to meet operating and financial obligations?

Given the following information,calculate the cash down payment required to purchase the specific property.Purchase Price: $500,000,Loan Amount: 80% of purchase price,Up-front financing costs: 2.5% of loan amount.

Given the following information,calculate the effective gross income multiplier for the specific investment.Effective gross income: $49,500,First-year NOI: $18,750,Acquisition price: $520,000,Equity Investment: 20%.

In calculating the net operating income (NOI)of a property,the "above-line" treatment of capital expenditures implies:

Prior to determining the treatment of capital expenditures in the calculation of NOI,it is important to distinguish these costs from operating expenses.In contrast to operating expenses,capital expenditures:

The key to meaningful valuations in real estate is to use defensible cash flow estimates.All of the following statements are true in regards to generating accurate cash flow estimates EXCEPT:

The measure of cash flow most relevant to investors in income-producing real estate is the after-tax cash flow (ATCF)from property operations.Therefore,it is important to know that the maximum federal income tax rate on individuals is currently:

The going-in capitalization rate can vary significantly by property quality.Which of the following classes of properties within a particular property type would be expected to have the highest cap rates?

The Nature of Real Estate and Real Estate Markets

Legal Foundations to Value

Conveying Real Property Interests

Government Controls and Real Estate Markets

Market Determinants of Value

Forecasting Ownership Benefits and Value: Market Research

Valuation Using the Sales Comparison and Cost Approaches

Valuation Using the Income Approach

Real Estate Finance: The Laws and Contracts

Residential Mortgage Types and Borrower Decisions

Sources of Funds for Residential Mortgages

Real Estate Brokerage and Listing Contracts

Contracts for Sale and Closing

The Effects of Time and Risk on Value

Mortgage Calculations and Decisions

Commercial Mortgage Types and Decisions

Sources of Commercial Debt and Equity Capital

Investment Decisions: NPV and IRR

Income Taxation and Value

Enhancing Value Through Ongoing Management

Leases and Property Types

Development: The Dynamics of Creating Value

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