Exam 3: Finance Theory and Real Estate

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If an investor owned an equity position in a building and wanted to increase value using leverage he could do so by either leveraging the property or borrowing personally.However,leverage is usually applied at the property,not the personal level because:

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A real estate asset provides an 11% return (the after tax cash flow is 11% of the cost of the asset).Debt can be obtained at a rate of 12% .Thus:

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Positive financial leverage occurs when:

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An asset is priced efficiently when:

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