Deck 15: Value, Leverage, and Capital Structure

Question 1

The use of debit in income-producing real estate can alter the value of:

A) amount risk of the cash flow to bankers
B) amount of cash flows to equity investors
C) risk of cash flows to equity investors
D) b and c
E) a and b

Answer 1

b and c

Question 2

Financial leverage is:

A) the left side of the balance sheet
B) the use of debt to finance real estate
C) the use of equity to finance real estate
D) a and b
E) b and c

Answer 2

the use of debt to finance real estate

Question 3

In any property cash flows are derived from two avenues:

A) operating cash flows
B) from sale of property
C) management costs
D) a and c
E) a and b

Answer 3

a and b

Question 4

The following is a NOT a proper list of potential commercial properties:

A) hotels,motels,urban office buildings
B) suburban office buildings,shopping malls,strip centers
C) warehouses,mini-warehouses,theme parks
D) restaurants,fast-food facilities,nursing centers
E) hospitals,apartment complexes,casinos,public schools

Question 5

Investors purchase multiple properties to:

A) diversify a portfolio
B) maximize investment return
C) minimize risk
D) a and b
E) all of the above

Question 6

A key non-real estate source of property cash flow is:

A) tax shelter
B) managerial talent
C) use of equity financing
D) debt financing
E) all the above

Question 7

Positive leverage is defined as the use of debt at a cost ________________ than the return on the asset which __________________ the return on equity.

A) decreases,increases
B) less,increases
C) increases,decreases d more,decreases
E equal,increases

Question 8

15-10.Residential income property is depreciated over:

A) 15 years
B) 30 years
C) 39 years
D) 27.5 years
E) 20 years

Question 9

Using the formula ROE = [NOI - rD] /Equity,the term positive leverage implies that the return On equity is ________________ than the return on assets if the cost of debt "r" is ___________ than ROA where ROA = NOI/EQUITY.

A) greater,less
B) less,greater
C) minimal,maximized
D) a and b
E) a and c

Question 10

Depreciation is defined as a _______________ but not a cash outlay.

A) cash expense
B) tax deductible expense
C) production cost
D) part of your cash flow
E) none of the above