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Exam 18: Investment Decisions: Ratios

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Question 1

Multiple Choice

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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) 0.69
B) 1.45
C) 2.73
D) 8.29

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B

Question 2

Multiple Choice

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The going-in capitalization rate can vary significantly by property quality.Which of the following classes of properties within a particular property type would be expected to have the highest cap rates?

A) Class A properties
B) Class B properties
C) Class C properties
D) Cap rates would be equal across all classes within the same property type

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Question 3

Multiple Choice

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Given the following information,calculate the total amount of annual operating expenses for this income-producing property.Lawn care: $10,000,Property taxes: $24,000,Maintenance: $35,000,Janitorial: $25,000,Security: $32,000,Debt service: $145,000.

In an analogy to the stock market,the net operating income of a property can be viewed as which of the following?

The key to meaningful valuations in real estate is to use defensible cash flow estimates.All of the following statements are true in regards to generating accurate cash flow estimates EXCEPT:

Given the following information,calculate the effective gross income multiplier for the specific investment.Effective gross income: $49,500,First-year NOI: $18,750,Acquisition price: $520,000,Equity Investment: 20%.

Given the following information,calculate the net income multiplier for this property.First-year NOI: $18,750,Acquisition price: $150,000,Equity Investment: 20%.

Given the following information,calculate the equity dividend rate for this investment.First-year NOI: $18,750,Before-tax cash flow: $11,440,Acquisition price: $520,000,Equity Investment: 20%.

Given the following information,calculate the operating expense ratio for this property.Potential gross income: $120,000,Vacancy rate: 9%,Net operating income: $57,900,Operating expenses: $51,300.

In making single-asset real estate investment decisions,the first pass often involves calculating a series of returns,ratios,and multipliers.Which of the following is often cited as a limitation associated with this type of analysis?

Prior to determining the treatment of capital expenditures in the calculation of NOI,it is important to distinguish these costs from operating expenses.In contrast to operating expenses,capital expenditures:

Given the following information,calculate the going-in capitalization rate for the specific property.First-year NOI: $18,750,Acquisition price: $150,000,Equity Investment: 20%.

Profitability ratios,income multipliers,and financial risk ratios can be used to provide a quick assessment of a property's relative value.Which of the following ratios measures the overall income-producing ability of the property?

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?

The measure of cash flow most relevant to investors in income-producing real estate is the after-tax cash flow (ATCF) from property operations.Therefore,it is important to know that the maximum federal income tax rate on individuals is currently:

In determining a property's before-tax cash flow from operations (BTCF) and net operating income (NOI) ,it is important to understand how each accounts for the use of financial leverage in its calculation.Which of the following statements is true in regards to how these two measures account for the use of financial leverage?

Helpful in assessing the risk of lending to investors for particular projects,which of the following calculations measures the income-producing ability of the property to meet operating and financial obligations?

Given the following information,calculate the cash down payment required to purchase the specific property.Purchase Price: $500,000,Loan Amount: 80% of purchase price,Up-front financing costs: 2.5% of loan amount.

In calculating the net operating income (NOI) of a property,the "above-line" treatment of capital expenditures implies:

Given the following information,calculate the loan-to-value ratio for this property.Loan amount: $450,000,Interest rate: 7.5%,Acquisition price: $550,000