Chapter 17 - Quiz

Question 1

In Accrual accounting which of the following is true?

Accrual accounting is only used in multi-million dollar corporations
Debt and Income are only shown when bills are paid and deposits are made.
Debts and Income are shown when bills are received and invoices are issued
Accrual accounting is not a recognized method.

Answer 1

Debts and Income are shown when bills are received and invoices are issued

Question 2

The following are all methods of appraising businesses EXCEPT?

The Cost Approach
The Good Will Approach
Income Capitalization Analysis
Liquidation Analysis

Answer 2

The Good Will Approach

Question 3

Fred wants a Cap Rate of 12.5% from an apartment building he wants to buy. If three units are rented for $450/mth, three for $500/mth and 2 for $600/mth what is the maximum price Fred should Pay for the building?

$500,625 (Dollars)
$50,625 (Dollars)
$38,800 (Dollars)
$388,800 (Dollars)

Answer 3

$388,800 (Dollars)

Question 4

Investing in Real Estate has some disadvantages, such as which one of the following?

Building Equity
Good Rate of Return
Hedging against inflation
Lack of Liquidity

Answer 4

Lack of Liquidity

Lack of Liquidity is a disadvantage of investing in Real Estate.

Question 5

What does the acronym REIT represent?

Real Estate Investment Trust
Regular Economic Investment Theory
Realty Earning Income Tax
Real Estate Income Theory

Answer 5

Real Estate Investment Trust

REIT is a Real Estate Investment Trust.

Question 6

Which of the following would be regarded as an intangible asset?

The number of orders per day
The good reputation of the business
Machinery
The number of workers required to operate the business

Answer 6

The good reputation of the business

The good reputation of the business would be an intangible asset.

Question 7

If the Cap Rate measures the amount of risk involved which of the following is true?

The Higher the Cap Rate the greater the risk.
The higher the Cap Rate the higher the Sale Price should be.
Cap Rate takes into account Debt Service Expenses
The Lower the Cap Rate the greater the risk

Answer 7

The Higher the Cap Rate the greater the risk.

The Higher the Cap Rate the greater the risk.

Question 8

A business that has been in operation for a long time has what type of Value?

Historic Value
Market Value
Going Concern Value
Tax Shelter Value

Answer 8

Going Concern Value

A business that has been in operation for a long time has Going Concern Value.

Question 9

If a property is valued at $280,000 and generates $1,750 per month what is the annual percent return (Cap Rate)?

6. 5% (Percent)
7. 5% (Percent)
8. 5% (Percent)
9. 0% (Percent)

Answer 9

7.5% (Percent)

Question 10

Using borrowed money to purchase investment property is an example of which of the following?

Depreciation
Leverage
Nolo Contendere
Caveat Emptor

Answer 10

Leverage

Using borrowed money to purchase investment property is an example of leverage.