Question 1.1. (TCO E) A real estate investment is available at an initial cash outlay of $10,000 and is expected to yield cash flows of $3,343.81 per year for five years. The internal rate of return is approximately: (Points : 5)2%20%23%17%Question 2.2. (TCO F) A landlord can shift risk to tenants through the use of: (Points : 5)tax stopsescalator clausesnet leasesall of the aboveQuestion 3.3. (TCO H) If operating expenses are $250,000, potential gross income is $650,000, and the maximum acceptable default ratio is .85, the largest mortgage loan the property will support with an annual debt service constant of .105 is: (Points : 5)less than $2.9 millionbetween $2.9 million and $3.1 millionmore than $3.1 millionnot determinable with available informationQuestion 4.4. (TCO E) Which of the following is not a contributing factor in making the choice of a discount rate a critical issue in selecting among alternative investment opportunities? (Points : 5)Using an unreasonably high discount rate makes an investment appear unjustifiably attractive.Minor adjustments in the discount rate can result in dramatic changes in net present value.The further into the future cash flow projections are made, the greater the influence of discount rate variations.Relative rankings of opportunities can be changed by altering the discount rate when the opportunities differ in the timing of anticipated cash flows.Question 5.5. (TCO H) Which of the following observations regarding demand for industrial space is untrue? (Points : 5)Demand for industrial space is a derived demand.Demand for industrial space is largely a function of the demand for products produced by the industrial sector.Changes in demand for industrial space are more volatile than changes in demand for industrial goods.Manufacturers generally adjust their space needs based on long-term projections of product demandQuestion 6.6. (TCOs B, C) The difference between the rate of return on assets and the cost of borrowing is: (Points : 5)financial leveragespreaddebt servicenone of the aboveQuestion 7.7. (TCO D) Depreciation allowances affect: (Points : 5)income tax consequencesnet operating incomebefore-tax cash flowall of the aboveQuestion 8.8. (TCOs B, C) If the NOI, as a percent rate of return on assets, drops below the debt-service constant: (Points : 5)using financial leverage will reduce the current return on equityusing financial leverage will increase the current return on equitythe greater the financial leverage, the higher the current return on equity(b) and (c) aboveQuestion 9.9. (TCO C) Which one of the following statements is true? (Points : 5)Debt-to-equity ratios are more often used in real estate finance than are loan-to-value ratios.Loan-to-value ratios are more often used in real estate finance than are debt-to-equity ratios.Neither of these ratios are commonly used in real estate finance.The choice of debt-to-equity ratio or loan-to-value ratio depends upon the borrower’s tax position.Question 10.10. (TCO C) When the rate of return on assets exceeds the cost of borrowing, it represents: (Points : 5)negative spreadpositive spreadfavorable spreadunfavorable spread1. (TCO A) What is the cause of a shift in a good’s supply curve? (Points : 20)2. (TCOs A, B, C) Based on the following data, estimate net operating income. Show your work in good form.Two-bedroom units rent for $600 per month (total of 40 units)One-bedroom units rent for $450 per month (total of 20 units)Vacancy and uncollectible rent losses typically amount to six percent of potential gross rent.Operating expenses average approximately 45 percent of potential gross income. (Points : 30)3. (TCOs C, D) What determines whether a mortgage loan is termed junior or senior? (Points : 20)4. (TCO D) Discuss the advantages of a tax-free exchange, and the major qualifications of this treatment. (Points : 20)5. (TCO E) Describe the problem of multiple solutions associated with the internal rate of return computation.(Points : 20)6. (TCO E) Describe the reinvestment rate problem associated with comparing projects using the internal rate of return. (Points : 20)7. (TCO E) What discounted cash flow approach works best when investors are faced with mutually dependent opportunities? Explain. (Points : 20)1. (TCOs F, G) What are the relative advantages and disadvantages of the certainty equivalent technique of adjusting for risk? (Points : 20)2. (TCOs F, G) What is a risk-reward indifference curve, and what gives it its characteristic shape? (Points : 20)3. (TCO H) Discuss some of the major issues involved in the development process. Explain issues such as refinancing, feasibility studies, regulatory concerns, etc. (Points : 30)
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