Chapter 9 Income Streams, Expenses, and Discounted Cash Flow Measurement Flashcards
What is the consumer price index and how is it sometimes used in the real estate industry?
The CPI is a monthly survey issued by the U.S. Department of Labor’s Bureau of Labor Statistics to statistically report the effect of inflation on the purchasing power of the the U.S. dollar and is sometimes used for rental income.
Define fixed and variable expenses.
A fixed expense is one over which a business has little control, such as insurance premiums and ad valorem taxes; a variable expense is one that is influenced by occupancy levels and the quality of professional management.
Define Net Operating Income.
The NOI is the sum of all actual and probably, less operating expenses.
What is the future value of $100 at 10% interest over 7 years?
$194.87 Solution 1 [gold] [p/yr] 100 [FV] 10 [I/yr] 7 [N] [FV] result of -194.87
What is the present value of $100 ten years from now at a discount rate of 11.5%?
$33.67 Solution 1 [gold] [p/yr] 100 [FV] 11.5 [I/yr] 10 [N] [FV] result of -33.67
What is the future value of $125,000 compounded at 9% at four years?
$176,447.70 Solution 1 [gold] [p/yr] 125,000 [FV] 9 [I/yr] 4 [N] [FV] result of -176,447.70
Costs related to exterior maintenance and areas used by tenants’ retail customers are billed to tenants through:
a. percentage rents
b. merchants associations
c. common-area maintenance charges
d. a chargeback system for ongoing services rendered
c. common-area maintenance charges
The revenue source that is unique to shopping centers, retail locations, and some specialized office and industrial building is:
a. percentage rent
b. service income
c. additional rent
d. vending machines
a. percentage rent
Which is fixed expense?
a. income taxes
b. ad valorem taxes
c. cleaning costs
d. maintenance costs
b. ad valorem taxes
The total of fixed and variable costs is termed the:
a. net operating income
b. annual budget
c. income schedule.
d. operating expense
d. operating expense
Net operating income is defined as:
a. expense plus debt service
b. expense less debt service
c. income plus operating expenses
d. income less operating expenses
d. income less operating expenses
What is the approximate future value of $1,000,000 at 3.5% for 4 years?
$1,147,523.00
In comparing the formulas for compounding and discounting, we find that they:
a. work toward future value
b. limit loan periods
c. represent opposite processes
d. differ in number of variables
c. represent opposite processes
What is the present value of $15,000 discounted at 7% for 5 years?
$10,695
To be capitalized as an annuity, an investment must have a:
a. steady income stream
b. high rate of return
c. set life expectancy
d. short-term maturity
a. steady income stream
What is contract rent?
The actual rent agreed upon in the terms of the lease.
Name two fixed expenses.
Note: fixed does not mean unchanging.
Ad valorem taxes (property taxes)’
Insurance
What are some factors that have an influence on variable expenses?
Occupancy levels and the quality of professional management.
cleaning management and administration repairs and maintenance roads and grounds utilities
What are operating expenses?
Costs and expenses incurred by a landlord in operating and maintaining a building; they include fixed and variable expenses
Define compounding.
The calculation of interest on a principle amount, plus interest on the interest accrued during a previous period.
What is the approximate future value of $8000 at 10% for 5 years?
$12,884.08
Calculate the approximate future value of $15,000 at 11.5% for 11 years.
$49,672.36
Calculate the approximate future value of $175,000 at 11.5% for 21 years.
$1,721,111.48
What is discounting?
The calculation of the reduction of future payments to a present value.
Calculate the present value of $1,250,000 discounted at 11% for 15 years.
$261,255.43
Calculate the present value of $340,513 discounted at 4.26% for 4 years.
$288,179.32
What is the present value of $27,500 discounted at 18.54% for 26 years?
$330.25
What is the present value of $442,890 discounted at 10% for 6 years.
$249,999.86
What is the present value of $310,585 discounted for 12% for 10 years?
$100,000
What is an annuity?
A contract for income payable at regular intervals at specified amounts.
