Chapter 21 - New Terms for Broker Candidates Only

Question 1

Current ratio

Answer 1

The measure of the business’s ability to meet short-term obligations, calculated by dividing the business’s current assets by its current liabilities.

Question 2

Discounted cash flow analysis

Answer 2

An investment valuation technique that considers anticipated changes in cash flows over years, projects the current value of net proceeds from the sale of the property in the future, and accounts for the time value of money.

Question 3

Environmental due diligence

Answer 3

The process by which a purchaser evaluates the likelihood of site contamination. It is normally accomplished by employing an environmental consultant to conduct an environmental site assessment.

Question 4

Function of an appraisal

Answer 4

How the client intends to use the information.

Question 5

Gross living area

Answer 5

The square footage calculated by taking the exterior dimensions of a house and then subtracting the garage square footage and any other square footage that is not heated.

Question 6

Home acquisition loan

Answer 6

A loan used to buy, construct, or improve a residence.

Question 7

Home equity loan

Answer 7

A loan, usually a second mortgage, that allows the borrower to take out a lump sum or to access a line of credit.

Question 8

Impact fees

Answer 8

Charges by local governments to fund major off-site improvements.

Question 9

Internal rate of return

Answer 9

The discount rate at which present values of future cash flows equal the down payment.

Question 10

Inventory turnover ratio

Answer 10

An analysis of a business’s management of inventory, calculated by dividing the cost of goods sold by the ending inventory.

Question 11

Long-term capital gain

Answer 11

A gain on a capital asset that has been held for more than one year, resulting in a more favorable capital gains tax rate.

Question 12

Net present value (NPV)

Answer 12

The present value of future cash flows (at a discount rate) minus the investor’s down payment.

Question 13

Passive income

Answer 13

Income derived from rental properties or other trades or businesses in which a taxpayer does not materially participate.

Question 14

Potentially responsible person

Answer 14

Individuals who are liable for the costs to cleanup a contaminated site, including past and present owners and operators of the site, creators of the hazardous material, and transporters of the hazardous material to the site.

Question 15

Quick ratio

Answer 15

A more conservative measure compared with the current ratio, of the business’s ability to meet short-term obligations because it does not include inventory in current assets. Calculated by dividing current assets (minus inventory) by current liabilities.

Question 16

Short-term capital gain

Answer 16

Profit from the sale of a property that is owned for 12 months or less taxed at the owner’s marginal tax rate.

Question 17

Subdivision regulations

Answer 17

Local regulations that control the size and location of streets, sidewalks, water and sewer lines, mandated drainage facilities, and the location of parks and open spaces.

Question 18

Trust liability

Answer 18

The sum total of all deposits received, pending, and being held by the broker at a point in time.

Question 19

Wetlands

Answer 19

Areas that have either groundwater levels at or near the surface for much of the year or have aquatic vegetation.