Chapter 17

Question 0

When the rate of return on borrowed funds exceeds the rate of return on the investment, the investor is experiencing

Answer 0

Negative leverage

Question 1

A business with sales of less than 200,000 is classified a a business

Answer 1

Opportunity

Question 2

The most important factor underlying every investment decision is

Answer 2

Economic soundness

Question 3

Is risk associated with changes in general market conditions

Answer 3

Dynamic risk

Question 4

Is risk that can be offset with insurance, which includes fire, flood, robbery and so on.

Answer 4

Static risk

Question 5

Occurs if the investment returns more to the investor than the cost of borrowing the money necessary to purchase the investment

Answer 5

Positive leverage

Question 6

Is used as a basis for making a real estate investment decision

Answer 6

Feasibility study

Question 7

Include cost that do not change with the level of occupancy, such as real estate taxes and hazard insurance

Answer 7

Fixed expenses

Question 8

Change with the level of occupancy and include costs such as management fees, maintenance, utilities, yard care, janitorial and so on

Answer 8

Variable expenses

Question 9

Is a non ash expense. This money if for future use to replace worn out components, called short lived items, such as carpeting, appliances, central heat and air systems, roof covering and so on

Answer 9

Reserve for replacements

Question 10

Ratios commonly used in the evaluation of income properties include

Answer 10

Operating expense and loan to value ratio ratio

Question 11

Tax law allows owners of residential and low income investment properties to depreciate a portion of their investment over

Answer 11

27.5 years on a straight line basis

Question 12

Owners of nonresidential investment properties may depreciate a portion of their investment over

Answer 12

39 years on a straight line basis

Question 13

Is profit made when an income property is sold or exchange is taxed to a minimum rate of 15 percent

Answer 13

Capital gain

Question 14

Income from salaries and wages

Answer 14

Active income

Question 15

Income from investments in which the investor does not materially participate

Answer 15

Passive income

Question 16

Income from dividends

Answer 16

Portfolio income

Question 17

Is a form of seller financing. No down payment is required to qualify

Answer 17

Installment sale

Question 18

Capital gain, investment property may be transferred into another property by exchanging properties with another investor

Answer 18

Tax deferred exchanges

Question 19

A business enterprise involves transactions in excess of $200,000

Answer 19

Business enterprise defined

Question 20

Business opportunities involve smaller business with sale prices of $200,000 or less

Answer 20

Business opportunity defined