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Question
The purchase price of an income producing property today is $570,000. After analysis of the expected future cash flows, expected sales price, and expected yield, the investor determines that the future cash flows have a present value (PV) of $580,000. Taking into consideration the price of the property today, what is the net present value (NPV) of this investment opportunity, and should the investor take the deal?A. $10,000; Yes
B. $10,000; No
C. -$10,000; Yes
D. -$10,000; No
Answer
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Related questions
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In contrast to maintenance and repair expenditures, which are operating expenses, the
improvement decision generally involves a capital expenditure meant to increase the value of the structure. Which of the following classifications of improvements calls for the restoration of a property to satisfactory condition without changing the floor plan, form, or style of the structure?
A. Rehabilitation
B. Remodeling
C. Adaptive reuse
D. Conversion
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In considering the main components of a construction budget, which costs would be expected to constitute the largest portion of a development project's expense?
A. Land costs
B. Hard construction costs
C. Soft construction costs
D. Marketing costs
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With a site under control, the developer will begin to evaluate the feasibility of the project. The main tool that a developer will use in determining the financial feasibility of a project is:
A. Net present value (NPV) analysis
B. Cost approach to valuation
C. Repeat-sales approach
D. Direct capitalization
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While the risks of construction lending may be less in a number of respects than those associated with land acquisition, banks still require a premium in their lending rate as compensation for the risks involved. For construction loans, banks typically require a premium above LIBOR that ranges from:
A. 0-50 basis points
B. 50-150 basis points
C. 150-250 basis points
D. 250-350 basis points
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Assume a retail tenant is paying a base rent of $120,000 per year (or $10,000 per month). In addition, the tenant must pay 7 percent of gross store sales in excess of $143,000 per month as percentage rent. If the store produces $170,000 in gross sales in a month, what is the total rent due for the month?A. $10,000B. $10,158C. $11,890D. $21,900
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Given the following information, calculate the load factor for this office property. Total usable area: 20,000 sq. ft., Tenant's prorated share of common area: 5,000 sq. ft.
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C. 1.25
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Lenders may request that property owners of rental properties include a clause in their lease agreement that gives the lender the right to terminate the lease and evict the tenant, even if the tenant has fulfilled all of its responsibilities under the lease, in the case that the owner of the property defaults on her mortgage. This part of the lease agreement is more commonly referred to as a:
A. Subordination clause
B. Non-disturbance agreement
C. Relocation option
D. Expansion option
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The majority of residential units in the U.S. are contained in multifamily structures, or apartment buildings that contain five or more housing units. Which of the following multifamily structures will range in height from four to nine stories and are typically found in both cities and suburbs?
A. High-rise apartment buildings
B. Midrise apartment buildings
C. Garden apartments
D. Condominiums
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While a sublease and an assignment are two distinct choices for a tenant who wishes to transfer his rights during the term of a lease, both agreements:
A. transfer all of a tenant's rights to another party
B. transfer only a subset of rights to another party
C. grant another party the right to cancel the original lease before expiration
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When the supply of space exceeds the demand, it is common for owners to provide the tenant with a period of free or perhaps reduced rent. This is commonly referred to as a(n):
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A. Maintenance of financial accounts for money collected from tenants
B. Liability
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Suppose a taxpayer owns an apartment complex. Under U.S. tax law, in what category would this property be classified?
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B. Dealer property
C. Trade or business property
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Under certain circumstances, investors are permitted to reduce the amount of the taxable income that they report by an amount that is intended to reflect the wear and tear of an asset over time. This is commonly referred to as:
A. appreciation
B. depreciation
C. capital gains
D. capital losses
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U.S. tax law is designed to raise revenues for the operations of the federal government and to promote certain socially desirable real estate-related activities. Tax legislation is combined into a single section of the federal statutory law commonly referred to as:
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The use of financial leverage in purchasing an income-producing property can affect the amount of cash required at acquisition, the net cash flows from rental operations, the net cash flows from the eventual sale of the property, and the ultimate return on invested equity. Assuming the going-in IRR is greater than the effective borrowing cost, if an investor increases his leverage rate, say from 75% to 80%, we would expect which of the following to occur?
A. Both NPV and going-in IRR increase
B. NPV decreases, while going-in IRR increases
C. NPV increases, while going-in IRR decreases
D. Both NPV and going-in IRR decrease
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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.A. 0.69B. 1.45C. 2.73D. 8.29
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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?A. 60%B. 70%C. 80%D. 90%
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In calculating the net operating income (NOI) of a property, the "above-line" treatment of capital expenditures implies: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.
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It would be hard to overstate the importance of the Federal Housing Administration (FHA) in the history of housing finance. Which of the following instruments created by the FHA is considered the single most important financial instrument in modern housing finance?
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B. Adjustable rate mortgage
C. Partially-amortizing balloon loan
D. Subprime mortgage loan
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The Federal Housing Administration (FHA) insures loans made by private lenders that meet FHA's property and credit-risk standards. Which of the following statements concerning FHA insurance is true?
A. The insurance is paid by the lender and protects the lender against loss due to borrower default.
B. The insurance is paid by the borrower and protects the lender against loss due to borrower default.
C. The insurance is paid by the lender and protects the borrower against loss due to lender default.
D. The insurance is paid by the borrower and protects the borrower against loss due to lender default.
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Mortgage insurance rates vary with the perceived riskiness of the loan. Which of the following scenarios would result in a higher mortgage insurance premium?
A. Lower loan-to-value ratio
B. Shorter loan term
C. Stronger credit record of the borrower
D. A "cash-out" refinancing loan
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Considered the most common type of home loan, which of the following refers to any standard home loan that is not insured or guaranteed by an agency of the U.S. government?
A. Conventional home loan
B. Federal Housing Administration loan
C. Veterans Affairs loan
D. Section 203 loan
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A. Foreclosure is a costly process for all parties involved.
B. Only those claimants who are properly notified and engaged in the foreclosure suit can lose their claims to the property.
C. When a lender forecloses on a property, it extinguishes all superior liens, bringing about a free and clear sale of the property. .
D. The net recovery by a lender from a foreclosed loan seldom exceeds 80 percent of the outstanding loan balance and commonly is much less than this amount.