Chapter 18

Question 1

Income multipliers

Answer 1

Are as useful as a preliminary analysis tool to weed out obviously unacceptable investment opportunites

Question 2

The overall capitalization rate

Answer 2

The reciprocal of the net income multiplier

Question 3

The operating expense ratio

Answer 3

expresses operating expenses as a percent of effective gross income.

Question 4

The equity dividend rate

Answer 4

expresses before-tax cash flow as a percent of the required equity cash outlay

Question 5

Ratio analysis

Answer 5

serves as an initial evaluation of the adequacy of an investment’s cash flow.

Question 6

Assume a retail center can be purchased for $5.5 million. The center’s NOI is expected to be $489,500. A $4,000,000 loan has been requested. The loan carries a 9.25 percent fixed contract rate, ammortized monthly over 25 years with a 7 year term. What will be the property’s (annual) debt coverage ration?

Answer 6

1.19

Question 7

Which of the following is not an operating expense associated with income producing (commercial) property?

Answer 7

Debt service

Question 8

What is the implied first year overall capitalization rate?

Answer 8

9.5 percent

Question 9

What is the effective gross income multiplier?

Answer 9

6.11

Question 10

Given the following information, what is the required equity down payment?
acquisition price: $800,000
Loan to Value: 75%
Up-front financing cost: 3%

Answer 10

$218,000