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Exam 8: Valuation Using the Income Approach

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Question 1

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Given the following information,calculate the net operating income assuming below-line treatment of capital expenditures? Property: 4 office units,Contract Rents per unit: $2500 per month,Vacancy and collection losses: 15%,Operating Expenses: $42,000,Capital Expenditures: 10%:

A) $48,000
B) $60,000
C) $95,000
D) $102,000

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Question 2

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Net operating income is similar to which of the following measures of cash flow in corporate finance?

A) Dividend yield
B) Earnings before deductions for interest,depreciation,income taxes,and amortization (EBIDTA)
C) Price-earnings ratio
D) Discount rate

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Question 3

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Most appraisers adhere to an "above-line" treatment of capital expenditures.This implies which of the following?

Given the following information,calculate the effective gross income multiplier.Sale price: $950,000,Potential Gross Income: $250,000,Vacancy and Collection Losses: 15%,and Miscellaneous Income: $50,000.

Operating expenses can be divided into two categories: variable and fixed expenses.Which of the following best exemplifies a fixed expense?

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.

The process of converting periodic income into a value estimate is referred to as income capitalization.Income capitalization models can generally be categorized as either direct capitalization models or discounted cash flow models.Which of the following statements best describes the direct capitalization method?

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?

Analysis of a subject property's pro forma reveals that its fifth year net operating income (NOI) is projected to be $100,282 (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 and the going-out capitalization rate in year five to be 10%,determine the net sale proceeds the current owner of the property would receive if he were to sell the property at the end of year five and incur selling expenses that amounted to $58,300.

Given the following information,calculate the appropriate going-in cap rate using mortgage-equity rate analysis.Mortgage financing = 75%,Typical debt financing cap rate: 10%,Sale price: $1,950,000,Before Tax Cash Flow (BTCF) : $390,000.

When using discounted cash flow analysis for valuation,an appraiser will prepare a cash flow forecast,often referred to as a:

Which of the following measures is considered the fundamental determinate of market value for income-producing properties?

Which of these is most likely to be regarded as a capital expenditure rather than an operating expense?

The distinction between market rent and contract rent is important due to differences in lease terms.Office,retail,and industrial tenants most commonly occupy their space under leases that run:

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.

The starting point in calculating net operating income is the total annual income the property would produce assuming 100 percent occupancy and no collection losses.This is commonly referred to as:

Given the following information,calculate the effective gross income.Property: 4 office units,Contract rents per unit: $2500 per month,Vacancy and collection losses: 15%,Operating Expenses: $42,000,Capital Expenditures: 10%

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:

One complication that appraisers may face is the variety of lease types that may be available for a particular property type.Which of the following statements best describes a "graduated" or step-up lease?

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.