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Exam 18: Investment Decisions: Ratios

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Question 1

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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:

A) Investors should include only those sources of income and expenses that relate directly to the income producing ability of the property.
B) Investors should only consider recent events,rather than long-term trends when evaluating revenue and expense items.
C) Investors should obtain information about comparable properties whenever possible.
D) Investors should take into consideration local zoning,land use,and environmental controls that may impact the future flow of funds.

E) C) and D)
F) A) and C)

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Question 2

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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?

A) Profitability ratios
B) Income multipliers
C) Financial risk ratios
D) Income tax multipliers

E) A) and C)
F) A) and B)

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Question 3

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Suppose the operating agreement of an LLC insists that all investors receive their pro rata share of all cash flows when a property is liquidated from the portfolio.If all 15 investors contributed an equal amount of equity in establishing the LLC,each investor should receive how much from the liquidation of a property valued at $3,500,000.

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?

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.

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

Given the following information,calculate the after tax-cash flow for this property. Debt Service: $45,000;First-year NOI: $91,750;Tax liability: 25% of Before Tax Cash Flow.

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.

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

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 debt yield ratio on the following commercial property.Estimated Net Operating Income in the first year: $250,000,Loan amount: $2,047,500,Purchase price: $2,730,000

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

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?

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?

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.

Single year return measures and ratios can be categorized into three groups: profitability ratios,multipliers,and financial ratios.All of the following are considered financial ratios EXCEPT:

Suppose you plan to put a 20% down payment on a house and obtain a mortgage loan that is less than the size limit on conforming loans ($417,000) to finance the remainder of the purchase.Based on your understanding of the loan-to-value ratio,what is the maximum price that you could pay for a home with these restrictions in mind?

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%.

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?

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: