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15 Cards in this Set
- Front
- Back
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A man bought a commercial site for $500,000 during an important upsurge in market values. After two years, what will the value of the site be if the average annual increase is 8%? |
The answer is $583,200. Multiply $500,000 by 1.08 (108% of last year's value) to get the value at the end of year 1 ($540,000). Then multiply $540,000 by 1.08 to get the value at the end of the second year ($583,200). |
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The most difficult and time-consuming part of a financial analysis is
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The answer is gathering the data. Owners typically understate expenses and overstate revenues. Few include management fees or reserves for replacements. |
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When the gross income of a property is exactly equal to the sum of the fixed costs and the variable costs, the property is at its
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The answer is breakeven point. This means that the property is taking in exactly what its expenses are and is breaking even.
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An investor buys a property for $100,000. He is confident that he will be able to sell it in two years for $200,000. He can borrow funds up to 80% of the value at 10% interest. For the best rate of return, how much should he borrow?
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The answer is 80%. Because his average annual rate of return (50%) is expected to be greater than the interest rate, he should borrow the maximum possible to get the greatest leverage.
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An investor buys an apartment property with 20 units. Effective gross income is $223,000, operating expenses are 40%, and the monthly mortgage payment is $6,897. The annual cash flow will be
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The answer is $51,036. Operating expenses are $89,200 ($223,000 × .40). Net operating income is $133,800 ($223,000 – $89,200). Mortgage payments are $82,764 annually ($6,897 × 12). Cash flow is $51,036 ($89,200 – $82,764).
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Which is the BEST example of the compound worth of an annuity?
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The answer is an investor puts $1,000 each year into a savings account that has an interest rate of 5%. He wants to solve for how much he will have in five years. Determining how much to invest to have a specific retirement amount will yield the present worth of an annuity.
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A man had a promissory note from a very wealthy individual that would pay $20,000 in 15 years. The factor for the present worth of $1 at a discount rate of 12% for 15 years is .1827. If Hunter sells the note to an investor who wants a 12% return, how much could he expect to receive?
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The answer is $3,654. Multiply $20,000 by the factor of .1827 to get the answer.
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The gross annual income for an apartment property is $325,000. There is a 5% vacancy rate, and operating expenses are 41% of the effective gross income. If interest expense is $88,000 and depreciation is $40,000, the taxable income of the property is
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The answer is $54,162. The effective gross income is $308,750 ($325,000 – $16,250 vacancy). Operating expenses are $126,587.50 ($308,750 × .41). Net operating income is $182,162.50 ($308,750 – $126,587.50). Taxable income is $54,162 ($182,162.50 – $88,000.50 – $40,000). |
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A borrower paid off a commercial loan that had an original principal balance of $18,000, and was taken out 14 months previously. The interest was $1,620. What was the annual simple interest rate on the loan? |
The answer is 7.7%. Calculate the annual interest, and then divide that by the principal to get the rate. $1,620 ÷ 14 × 12 months = $1,388.57 annual interest. $1,388.57 ÷ $18,000 = 7.7%. (If you calculated 6.4%, you got a monthly rate of .00643, and that must be multiplied by 12 months.) |
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Which is NOT one of the analyses of a formal feasibility study? |
The answer is investor profile. The three analyses in a formal feasibility study are a market analysis, a property analysis, and a financial analysis. |
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A property has 50 apartments that each rent for $12,000 annually. The property experiences a 7% vacancy rate. Operating expenses are 38% of the effective gross income. Interest was $48,000, depreciation was $31,000, and the owner made capital improvements of $21,000. What is the net operating income?
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The answer is $345,960. Gross income is $600,000 ($12,000 × 50 apartments) – $42,000 vacancy ($600 × .07) = $558,000. Operating expenses are $212,040. Net operating income is $345,960 ($558,000 – $212,040). |
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If a property's effective gross income is $478,000 and the operating expense ratio is 40%, what is the value of the property if the capitalization rate is 11%?
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The answer is $2,607,273. First, determine the net operating income by deducting the expenses from the effective gross income. Then, divide the net operating income by the capitalization rate. Deduct expenses of $191,200 ($478,000 × .40) from the effective gross income to get net operating income of $286,800 ($478,000 – $191,200). Divide $286,800 by .11 to get the value of the property. |
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A woman purchased an office building with a $200,000 down payment. At the end of the first year, the property had after-tax cash flow of $18,500. She paid down $6,500 on the mortgage balance, and the property increased in value by $9,000. Using this information, what was the woman's percentage return on investment?
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The answer is 17%. Add the cash flow, the mortgage paydown, and the increase in value and divide the total by the down payment. $18,500 + $6,500 + $9,000 = $34,000 ÷ $200,000 = 17%
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The internal rate of return is the discount rate in which the
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The answer is present worth of the cash flows exactly equals the down payment. The internal rate of return is the discount rate in which the present worth of cash flows equals the down payment.
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The present worth of $1 is reciprocal to
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The answer is the compound worth of $1. If the compound worth of $1 for five years at 5% is $1.61, the present value of $1.61 discounted at 5% for five years is $1 |
