Question 1

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

Accepted Answer

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 D

Question 2

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

Accepted Answer

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

Question 3

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

Accepted Answer

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 E

Question 4

Financial leverage is:

Accepted Answer

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

Question 5

15-10.Residential income property is depreciated over:

Accepted Answer

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

Question 6

Investors purchase multiple properties to:

Accepted Answer

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

Question 7

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.

Accepted Answer

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

Question 8

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

Accepted Answer

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

Question 9

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

Accepted Answer

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

Question 10

In any property cash flows are derived from two avenues:

Accepted Answer

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

Exam 15: Value, Leverage, and Capital Structure