Ree final exam 3

The debt coverage ratio (DCR) is used by lenders to see how much net operating income can decline before it will not cover debt service. Lenders who rely on this ratio are typically willing to accept a minimum DCR of A. 1.2 to 1.3 B. 1.5 to 1.6 C. 1.8 to 1.9 D. 2.1 to 2.2

A. 1.2 to 1.3

Which of the following ownership structures suffers from the major disadvantage of double taxation? A. C Corporation B. S Corporation C. General Partnership D. Limited Liability Company

A. C Corporation

Which of the following ratios measures the overall income-producing ability of the property? A. Capitalization rate B. Equity dividend rate C. Debt coverage ratio D. Operating expense ratio

A. Capitalization rate

What term best describes the maximum price a particular buyer is willing to pay for a property? A. Investment value B. Highest and best use C. Competitive value D. Market value

A. Investment value

Which of the following ownership structures requires cash flows to be allocated to each shareholder in proportion to his or her ownership of the entity, thereby preventing special allocations to multiple classes of investors? A. S Corporation B. General Partnership C. Limited Partnership D. Limited Liability Company

A. S Corporation

Given the following information, calculate the before-tax equity reversion (BTER). NOI: $89,100, Annual debt service: $58,444, Net sale proceeds: $974,700, Remaining mortgage balance: $631,026. A. $30,656 B. $343,674 C. $572,582 D. $885,600

B. $343,674

Given the following information, calculate the net sale proceeds of the property at the end of its holding period. Estimated holding period: 10 years, Acquisition price: $744,094, Expected appreciation rate: 3%, Selling expense: 4%. A. $939,092 B. $960,000 C. $1,000,000 D. $1,068,398

B. $960,000

As a general rule, using financial leverage: A. Decreases risk to the equity investor B. Increases risk to the equity investor C. Has no impact on risk to the equity investor D. May increase or decrease risk to the equity investor, depending on the income tax treatment of the interest expense and the equity investor's marginal income tax bracket

B. Increases risk to the equity investor

Which of the following measures, equal to the estimated total market value of a REITs underlying assets, allows investors to compare the value of a publicly traded security to the value of the properties that it holds? A. Net income B. Net asset value C. Funds from operations D. Effective gross income

B. Net asset value

The net present value of an acquisition is equal to: A. The present value of expected future cash flows, plus the initial cash outlay B. The present value of expected future cash flows, less the initial cash outlay C. The sum of expected future cash flows, less the initial cash outlay D. None of the above

B. The present value of expected future cash flows, less the initial cash outlay

As of 2011, nearly 88% of private commercial real estate equity was owned by "noninstitutional investors." Which of the following investor categories represents the most common form of noninstitutional ownership? A. Pension funds B. Sole proprietorship C. "Local" syndications and private equity funds D. Life insurance companies

C. "Local" syndications and private equity funds

Given the following information, calculate the estimated terminal value of the property at the end of its holding period. Going-out cap rate: 9%, Estimated holding period: 5 years, NOI for year 5: $100,500, NOI for year 6: $102,000. A. $1,113,333 B. $1,116,667 C. $1,133,333 D. $1,166,667

C. $1,133,333

Given the following information, what is the required initial equity investment (i.e., the down payment)? Acquisition price: $800,000, Loan-to-value ratio: 75%, Capitalization rate: 8.5%, Upfront financing costs: 3%. A. $118,000 B. $200,000 C. $218,000 D. $250,000

C. $218,000

Given the following information, calculate the effective gross income multiplier (EGIM) for the specific investment. Effective gross income: $49,500, First-year NOI: $18,750, Acquisition price: $520,000, Equity Investment: 20%. A. 0.036 B. 0.095 C. 10.5 D. 27.7

C. 10.5

Given the following information, calculate the equity dividend rate (EDR) for this investment. First-year NOI: $18,750, Before-tax cash flow: $11,440, Acquisition price: $520,000, Equity investment: 20%. A. 2.2% B. 3.6% C. 11.0% D. 18.0%

C. 11.0%

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? A. BTCF and NOI are both levered cash flows B. BTCF is an unlevered cash flow, while NOI is a levered cash flow C. BTCF is a levered cash flow, while NOI is an unlevered cash flow D. BTCF and NOI are both unlevered cash flows

C. BTCF is a levered cash flow, while NOI is an unlevered cash flow

Which of these lenders is most likely to provide a construction loan? A. Savings and loan association B. Credit union C. Commercial bank D. Life insurance company E. Real estate investment trust

C. Commercial bank

Which of the following ownership structures suffers from the major disadvantage of unlimited liability for all investors? A. C Corporation B. S Corporation C. General Partnership D. Limited Partnership

C. General Partnership

Which of these loans is a life insurance company most likely to invest in? A. Single-family home loan B. Small commercial property loan (nonconstruction) C. Large office building loan (nonconstruction) D. Large construction loan E. Small construction loan

C. Large office building loan (nonconstruction)

Given the following information, calculate the REIT's funds from operation (FFO). Net income: $1,200,000, Gain/losses from infrequent and unusual events: $0, Amortization of tenant improvements: $120,000, Amortization of leasing expenses: $75,000, Depreciation (real property): $2,675,000. A. $195,000 B. $1,395,000 C. $2,870,000 D. $4,070,000

D. $4,070,000

There are a set of restrictive conditions that REITs must satisfy on an ongoing basis in order to maintain their special tax status. All of the following statements regarding the main restrictions are true EXCEPT: A. At least 100 investors must own a REIT's shares B. No five investors can own more than 50 percent of a REIT's shares C. At least 75 percent of the value of a REIT's assets must consist of real estate assets D. A REIT must distribute at least 75% of its taxable income to shareholders in the form of dividends.

D. A REIT must distribute at least 75% of its taxable income to shareholders in the form of dividends.

When fund managers collect contributions from multiple sources and "commingle" them to purchase properties, this is referred to as a commingled real estate fund (CREF). To which of the following institutional investors are CREFs targeted by the entities that create them? A. Investment banks B. Life insurance companies C. Real estate advisory firms D. Pension funds

D. Pension funds

Ratio analysis: A. Includes estimating the net present value of the investment opportunity B. Is generally adequate to fully assess an investment's expected return C. Requires cash flow estimates for the investment's entire expected holding period D. Serves as an initial evaluation of the adequacy of an investment's expected cash flows

D. Serves as an initial evaluation of the adequacy of an investment's expected cash flows