REE 3043 Chapter 8

Suppose that an income-producing property is expected to yield cash flows for the owner of $150,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 8% annually and the property can be sold for $1,250,000 at the end of the fifth year, determine the value of the property today. $304,704.00 $1,449,635.50 $1,481,143.98 $2,000,000.00

$1,449,635.50

Suppose that examination of a pro forma reveals that the fifth-year net operating income (NOI) for an income-producing property that you are analyzing is $138,446 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 5% per year, determine the projected sale price of the property at the end of year 5 if the going-out capitalization rate is 9%. $988,900.00 $1,465,037.00 $1,538,289.00 $1,615,203.00

$1,615,203.00

Suppose that you are attempting to value an income-producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 7.5%. If the projected first-year net operating income (NOI) for the subject property is $135,500, what is the indicated value of the subject using direct capitalization? $144,985.00 $150,555.56 $1,806,666.67 $9,033,333.33

$1,806,666.67

Suppose that examination of a pro forma reveals that the fifth-year net operating income (NOI) for an income-producing property that you are analyzing is $913,058 (you can assume that this cash flow occurs at the end of the year). If you estimate the projected rental growth rate for the property to be 3% per year, determine the projected sale price of the property at the end of year 5 if the going-out capitalization rate is 8%. $1,603,600 $2,350,159 $11,413,225 $11,755,622

$11,755,622

For smaller income-producing properties, appraisers may use the ratio of a property's selling price to its effective gross income. This is an example of a net operating income. going-out cap rate. going-in cap rate. gross income multiplier.

gross income multiplier.

Suppose that an income-producing property is expected to yield cash flows for the owner of $10,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 12% annually and the property can be sold for $100,000 at the end of the fifth year, determine the value of the property today. $36, 047.76 $56,742.69 $83,333.33 $92,790.45

$92,790.45

Suppose that you are attempting to value an income-producing property using the direct capitalization approach. Using data from comparable properties, you have determined the overall capitalization rate to be 11.44%. If the projected first-year net operating income (NOI) for the subject property is $44,500, what is the indicated value of the subject using direct capitalization? $49,590.80 $50,225.73 $388,986.00 $509,080.00

388,986

Given the following information, calculate the effective gross income multiplier: sale price: $2,500,000; effective gross income: $340,000; operating expenses: $100,000; capital expenditures: $36,000. 0.136 7.35 10.42 12.25

7.35

Given the following information, calculate the appropriate going-in cap rate using general constant-growth formula: overall market discount rate, 12%; constant growth rate projection: 3% per year; sale price: $1,950,000; net operating income: $390,000; potential gross income: $520,000. 8% 9% 10% 11.5%

9%

Most appraisers adhere to an "above-line" treatment of capital expenditures. This implies which of the following? Capital expenditures are subtracted in the calculation of net operating income. Capital expenditures are subtracted from net operating income to obtain a net cash flow measure. Capital expenditures are added to net operating income. Capital expenditures are excluded from all calculations because they are difficult to estimate.

Capital expenditures are subtracted in the calculation of net operating income

Gross income multiplier analysis assumes that the subject and comparable properties are collecting market rents. Therefore, it is frequently argued that an income multiplier approach to valuation is most appropriate for properties with short-term leases. For which of the following property types, therefore, would we find it most appealing to use a gross-income multiplier in our analysis? apartments office industrial retail

apartments

In calculating net operating income, vacancy losses must be subtracted from the gross income collected. The normal range for vacancy and collection losses for apartment, office, and retail properties is between 0% and 1%. between 1% and 5%. between 5% and 15%. between 15% and 20%.

between 5% and 15%.

The expected costs to make replacements, alterations, or improvements to a building that materially prolong its life and increase its value is referred to as operating expenses. capital expenditures. vacancy losses. collection losses.

capital expenditures

Net operating income is similar to which of the following measures of cash flow in corporate finance? dividend yield earnings before deductions for interest, depreciation, income taxes, and amortization (EBIDTA) price-earnings ratio discount rate

earnings before deductions for interest, depreciation, income taxes, and amortization (EBIDTA)

When calculating the net operating income of a property, it is important to identify any expenses that will be incurred in attempts to maintain the property. All of the following would be considered operating expenses except property insurance premiums. mortgage payments. utility expenses. property taxes.

mortgage payments

When using discounted cash flow analysis for valuation, an appraiser will prepare a cash flow forecast, often referred to as a restricted appraisal report. net operating income statement. direct market extraction. pro forma.

pro forma