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(TCOs B, C) The difference between the rate of return on assets and the cost of borrowing is (Points 5)

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1. (TCOs B, C) The difference between the rate of return on assets and the cost of borrowing is: (Points : 5)

       financial leverage

       spread

       debt service

       none of the above

 

Question 2.

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

 

Question 3.

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

 

Question 4.

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)

       $1,455,000

       $1,464,000

       $698,250

       none of the above

 

Question 5.

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

 

Question 6.

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.

 

Question 7.

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)

       Project S

       Project L

       The net present values are equal

       Cannot be solved with the information provided

 

Question 8.

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

 

Question 9.

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

 

Question 10.

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

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