Question 1.1. (TCO E) A real estate investment is available at an initial cash outlay of $10,000

Question 1.1. (TCO E) A real estate investment is available at an initial cash outlay of $10,000 and is expected to yield cash flows of $3,343.81 per year for five years. The internal rate of return is approximately: (Points : 5)
2%
20%
23%
17%


Question 2.2. (TCO F) A landlord can shift risk to tenants through the use of: (Points : 5)
tax stops
escalator clauses
net leases
all of the above


Question 3.3. (TCO H) If operating expenses are $250,000, potential gross income is $650,000, and the maximum acceptable default ratio is .85, the largest mortgage loan the property will support with an annual debt service constant of .105 is: (Points : 5)
less than $2.9 million
between $2.9 million and $3.1 million
more than $3.1 million
not determinable with available information


Question 4.4. (TCO E) Which of the following is not a contributing factor in making the choice of a discount rate a critical issue in selecting among alternative investment opportunities? (Points : 5)
Using an unreasonably high discount rate makes an investment appear unjustifiably attractive.
Minor adjustments in the discount rate can result in dramatic changes in net present value.
The further into the future cash flow projections are made, the greater the influence of discount rate variations.
Relative rankings of opportunities can be changed by altering the discount rate when the opportunities differ in the timing of anticipated cash flows.


Question 5.5. (TCO H) Which of the following observations regarding demand for industrial space is untrue? (Points : 5)
Demand for industrial space is a derived demand.
Demand for industrial space is largely a function of the demand for products produced by the industrial sector.
Changes in demand for industrial space are more volatile than changes in demand for industrial goods.
Manufacturers generally adjust their space needs based on long-term projections of product demand


Question 6.6. (TCOs B, C) The difference between the rate of return on assets and the cost of borrowing is: (Points : 5)
financial leverage
spread
debt service
none of the above


Question 7.7. (TCO D) Depreciation allowances affect: (Points : 5)
income tax consequences
net operating income
before-tax cash flow
all of the above


Question 8.8. (TCOs B, C) If the NOI, as a percent rate of return on assets, drops below the debt-service constant: (Points : 5)
using financial leverage will reduce the current return on equity
using financial leverage will increase the current return on equity
the greater the financial leverage, the higher the current return on equity
(b) and (c) above


Question 9.9. (TCO C) Which one of the following statements is true? (Points : 5)
Debt-to-equity ratios are more often used in real estate finance than are loan-to-value ratios.
Loan-to-value ratios are more often used in real estate finance than are debt-to-equity ratios.
Neither of these ratios are commonly used in real estate finance.
The choice of debt-to-equity ratio or loan-to-value ratio depends upon the borrower's tax position.


Question 10.10. (TCO C) When the rate of return on assets exceeds the cost of borrowing, it represents: (Points : 5)
negative spread
positive spread
favorable spread
unfavorable spread