Question 1

Which of the following is FALSE regarding the release price?

Accepted Answer

A)   It is usually calculated to pay off the loan when the last lot is sold
B)   It is usually calculated to pay off the loan before the last lot is sold
C)   Increasing the release price usually lowers the lender's risk
D)   Increasing the release price is likely to lower the investor's initial cash flow

Question 2

Which of the following costs should NOT be included in a net present value analysis of a land development project?

Accepted Answer

A)   Land purchase price
B)   Property tax
C)   General overhead such as personnel costs
D)   Developer's profit

Question 3

Which of the following might impact the density of housing in a land development project?

Accepted Answer

A)   The price paid for the land by the developer
B)   The terrain of the land
C)   The target market's preferences regarding density
D)   All of the above

Question 4

Which of the following was not stated as contributing to the complication of estimating amount of interest carry?

Accepted Answer

A)   The loan is drawn and interest is calculated on drawn amount.
B)   Revenue from each type of site varies.
C)   The rate of repayment of a loan depends on when the parcel is sold.
D)   Development loan interest rates are usually fixed while market rates fluctuate.

Question 5

The release schedule refers to a schedule of expiring leases for existing tenants.

Accepted Answer

A) True 
 B)False

Question 6

A transaction in which two firms trade individual financing advantages to produce more favorable borrowing terms for each is know as a(n) :

Accepted Answer

A)   interest rate swap.
B)   sequential short hedge.
C)   cross hedge.
D)   allof the above.

Question 7

It is common for a developer to hold back funds to be sure that subcontractors perform all work completely before making final payment.

Accepted Answer

A) True 
 B)False

Question 8

Generally,which of the following is NOT true of an option contract?

Accepted Answer

A)   An option contract allows the developer to perform a preliminary market study and feasibility analysis
B)   If the developer decides to purchase a property,the price of an option is applied towards the price of the property
C)   If the developer decides not to purchase the property,the landowner will refund any money paid for the option
D)   An option contract provides the developer with the assurance that a property will not be sold over the course of the option period

Question 9

The land development industry is best characterized by which of the following statements?

Accepted Answer

A)   The land development industry is dominated by relatively few national competitors
B)   The land development industry is highly fragmented,localized,and extremely competitive
C)   Land development and project development are synonymous
D)   The production technologies and market risks involved in land development are essentially the same as those in project development

Question 10

By using an option contract,a developer may profit from an appreciation in the property's value over the option period.

Accepted Answer

A) True 
 B)False

Question 11

When financing land development,the lender generally requires the developer to submit which of the following?

Accepted Answer

A)   A detailed breakdown of project cost
B)   Required zoning changes
C)   Bank references for the general contractor to be used on the project
D)   All of the above

Question 12

Usually,a lender does not require a developer to submit a schedule of estimated cash flows prior to approving a land development loan.

Accepted Answer

A) True 
 B)False

Question 13

An analysis of whether land can be purchased and developed profitably is known as __________.

Accepted Answer

A)   Financial Analysis
B)   Feasibility Study
C)   Turnkey Study
D)   Project Profitability B

Question 14

The amount to be paid to the lender from each lot sale is included in the

Accepted Answer

A)   Release Schedule
B)   Development Agreement
C)   Cost Breakdowns
D)   Subcontracts

Question 15

In most instances,a developer's repayment rate is set so that the development loan will be repaid at the exact point that 100% of total project revenue is realized.

Accepted Answer

A) True 
 B)False

Question 16

In order to obtain a land development loan,the developer is required usually to purchase title insurance.

Accepted Answer

A) True 
 B)False

Question 17

Generally,which of the following is NOT true of interest rate risk management techniques?

Accepted Answer

A)   Borrowers can protect themselves from upward movements in interest rates by using interest rate caps
B)   Borrowers can protect themselves from upward movements in interest rates by using interest rate futures contracts
C)   Borrowers can benefit from downward movements in interest rates by using interest rate caps
D)   Borrowers can benefit from downward movements in interest rates by using interest rate futures contracts D

Question 18

A futures instrument,such as a T-bill,can be used to hedge a cash or a spot instrument such as the prime rate,where the two instruments are not perfectly correlated.What type of hedge is this referred to as?

Accepted Answer

A)   A perfect hedge
B)   A straight hedge
C)   A cross hedge
D)   None of the above

Question 19

Each parcel of land in a new development is selling for $15,000 and the total project revenue is estimated to be $5,000,000.The project lender has stated that the loan should be paid off when 80% of the total project revenue has been earned.The total loan amount is $3,500,000.What is the release price for each parcel?

Accepted Answer

A)   $8,400
B)   $13,215
C)   $18,750
D)   None of the above

Question 20

It is proper to include an estimate for developer profit as a cost of development when projecting net cash flows and evaluating whether a required rate of return will be met.

Accepted Answer

A) True 
 B)False  False

Exam 17: Financing Land Development Projects

Which of the following is FALSE regarding the release price?

Correct Answer
verified

Which of the following costs should NOT be included in a net present value analysis of a land development project?

Correct Answer
verified

Which of the following might impact the density of housing in a land development project?

Correct Answer
verified

Which of the following was not stated as contributing to the complication of estimating amount of interest carry?

Correct Answer
verified

The release schedule refers to a schedule of expiring leases for existing tenants.

Correct Answer
verified

A transaction in which two firms trade individual financing advantages to produce more favorable borrowing terms for each is know as a(n) :

Correct Answer
verified

It is common for a developer to hold back funds to be sure that subcontractors perform all work completely before making final payment.

Correct Answer
verified

Generally,which of the following is NOT true of an option contract?

Correct Answer
verified

The land development industry is best characterized by which of the following statements?

Correct Answer
verified

By using an option contract,a developer may profit from an appreciation in the property's value over the option period.

Correct Answer
verified

When financing land development,the lender generally requires the developer to submit which of the following?

Correct Answer
verified

Usually,a lender does not require a developer to submit a schedule of estimated cash flows prior to approving a land development loan.

Correct Answer
verified

An analysis of whether land can be purchased and developed profitably is known as __________.

Correct Answer
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B

The amount to be paid to the lender from each lot sale is included in the

Correct Answer
verified

In most instances,a developer's repayment rate is set so that the development loan will be repaid at the exact point that 100% of total project revenue is realized.

Correct Answer
verified

In order to obtain a land development loan,the developer is required usually to purchase title insurance.

Correct Answer
verified

Generally,which of the following is NOT true of interest rate risk management techniques?

Correct Answer
verified
D

A futures instrument,such as a T-bill,can be used to hedge a cash or a spot instrument such as the prime rate,where the two instruments are not perfectly correlated.What type of hedge is this referred to as?

Correct Answer
verified

Correct Answer
verified

It is proper to include an estimate for developer profit as a cost of development when projecting net cash flows and evaluating whether a required rate of return will be met.

Correct Answer
verified
False

Exam 17: Financing Land Development Projects

Which of the following is FALSE regarding the release price?

Correct AnswerverifiedShow Answer

Which of the following costs should NOT be included in a net present value analysis of a land development project?

Correct AnswerverifiedShow Answer

Which of the following might impact the density of housing in a land development project?

Correct AnswerverifiedShow Answer

Which of the following was not stated as contributing to the complication of estimating amount of interest carry?

Correct AnswerverifiedShow Answer

The release schedule refers to a schedule of expiring leases for existing tenants.

Correct AnswerverifiedShow Answer

A transaction in which two firms trade individual financing advantages to produce more favorable borrowing terms for each is know as a(n) :

Correct AnswerverifiedShow Answer

It is common for a developer to hold back funds to be sure that subcontractors perform all work completely before making final payment.

Correct AnswerverifiedShow Answer

Generally,which of the following is NOT true of an option contract?

Correct AnswerverifiedShow Answer

The land development industry is best characterized by which of the following statements?

Correct AnswerverifiedShow Answer

By using an option contract,a developer may profit from an appreciation in the property's value over the option period.

Correct AnswerverifiedShow Answer

When financing land development,the lender generally requires the developer to submit which of the following?

Correct AnswerverifiedShow Answer

Usually,a lender does not require a developer to submit a schedule of estimated cash flows prior to approving a land development loan.

Correct AnswerverifiedShow Answer

An analysis of whether land can be purchased and developed profitably is known as __________.

Correct AnswerverifiedB

The amount to be paid to the lender from each lot sale is included in the

Correct AnswerverifiedShow Answer

In most instances,a developer's repayment rate is set so that the development loan will be repaid at the exact point that 100% of total project revenue is realized.

Correct AnswerverifiedShow Answer

In order to obtain a land development loan,the developer is required usually to purchase title insurance.

Correct AnswerverifiedShow Answer

Generally,which of the following is NOT true of interest rate risk management techniques?

Correct AnswerverifiedD

A futures instrument,such as a T-bill,can be used to hedge a cash or a spot instrument such as the prime rate,where the two instruments are not perfectly correlated.What type of hedge is this referred to as?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

It is proper to include an estimate for developer profit as a cost of development when projecting net cash flows and evaluating whether a required rate of return will be met.

Correct AnswerverifiedFalse

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B

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D

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False