Assignment 4 Ch. 11

Which of the following is NOT one of the primary benefits of investing in real estate income property?

Business cycles--Real estate income properties tend to generate higher incomes when other investments are in decline

The equity dividend rate is accurate measure of investment yield because it considers future cash flows.

False

A restaurant is fore sale for $200,000. It is estimated that the restaurant will earn $20,000 a year for the next 15 years, it is estimated that the restaurant will sell for $350,000. Which of the following would be MOST LIKELY to occur if the investor's required rate of return is 15 percent?

Investor would not pursue the project.

Which of the following is FALSE regarding DCR?

It is not of concern to lenders when loan to value ratios are low.

Residential property is depreciated over 27.5 years whereas nonresidential property is depreciated over 39 years.

True

The debt coverage ratio is used by lenders to indicate the riskiness of a loan.

True

The deductibility of depreciation in calculating taxable income will usually cause the effective tax rate to be lower than the actual tax rate.

True

When calculating IRR, the projected cash flows are discounted such that they will equal the initial investment amount.

True

The general investment strategy based on a goal of acquiring existing, seasoned, relatively low-risk properties that are at least 80 percent leased to tenants with low credit risk, is:

core strategy.