1. (TCOs B, C) The difference between the rate of return on assets and the cost of borrowing is: (Points : 5)
none of the above
2. (TCO D) A major drawback of a corporation (other than a Subchapter-S, or Tax Option corporation) is: (Points : 5)
corporations are not tax conduits
shareholders have limited liability
shareholders participate in management decisions
none of the above
3. (TCO G) In contemporary risk analysis: (Points : 5)
risk is defined as the measurable likelihood of variance from the most probable outcome
no attempt is made to quantify risk
the terms risk and uncertainty are used synonymously
investors are viewed as being risk-neutral
4. (TCO B) A property has a potential gross rent of $1,500,000; operating expenses of $765,750; a vacancy allowance of $45,000, and other income of $9,000. What is its effective gross income? (Points : 5)
none of the above
5. (TCO A) The investment decision process: (Points : 5)
is fundamentally the same for real estate investment analysis as for other investment areas
requires the investor to adjust expected cash flows for timing differences and risk
recognizes that investment assets are desired only for the benefits of ownership they bestow
all of the above are true
6. (TCO G) Regarding modern portfolio theory, which one of the following observations is untrue? (Points : 5)
Adding a risk-free asset to the portfolio alters the efficient frontier.
Adding leveraged assets to the portfolio alters the efficient frontier.
It is virtually impossible to determine what combination of assets comprises an efficient portfolio.
Portfolios that are not on the efficient frontier are unattainable.
7. (TCO E) Two mutually exclusive projects are available for an investment of $4,900 each. Project S will generate cash flows of $6,000 per year for two years. Project L will generate cash flows of $2,400 per year for six years. At an opportunity cost of capital of 6%, which project will yield the highest net present value? (Points : 5)
The net present values are equal
Cannot be solved with the information provided
8. (TCO G) A primary advantage of the mean-standard deviation model (as presented in this course) is that: (Points : 5)
it generally eliminates the "subjective" nature of the risk assessment that would otherwise be involved
it permits the analyst to communicate his assessment of risk, without incorporating his personal risk preference function into the report
it usually permits development of objective estimates of risk associated with forecasts of future rental revenue, through the use of traditional statistical sampling techniques
all of the above
9. (TCOs B, C) If the NOI, as a percent rate of return on assets, drops below the debt-service constant: (Points : 5)
using financial leverage will reduce the current return on equity
using financial leverage will increase the current return on equity
the greater the financial leverage, the higher the current return on equity
(b) and (c) above
10. (TCO H) Which of the following observations regarding demand for industrial space is untrue? (Points : 5)
Demand for industrial space is a derived demand.
Demand for industrial space is largely a function of the demand for products produced by the industrial sector.
Changes in demand for industrial space are more volatile than changes in demand for industrial goods.
Manufacturers generally adjust their space needs based on long-term projections of product demand