1. If market pricing of commercial real estate is above replacement cost, ignoring risk, to ensure a favorable cost basis an investor would: C a. Renovate existing properties IF Yr. 1 entry cap rates based upon post-renovation NOI were less than market cap rates at that time C b. Renovate existing properties IF Yr. 1 entry cap rates based upon post-renovation NOI were greater than market cap rates at that time c. None of the answer choices c d. Purchase existing properties
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- A commercial real estate company has an option to develop a parcel of land. Assuming the dynamics of land value, L, are described by geometric Brownian motion with drift a and volatility o, and that the cost of developing the land is I, answer the following questions. Assume the economy is risk-neutral and the instantaneous risk-free rate of interest is r. a. Compute the value of the development option, F(L), and the optimal exercise policy, L, assuming the firm can exercise the option at any time. b. In a more realistic setting, the company may face competition that damages the value of its growth options. For simplicity, assume that the arrival of competition can be described as a Poisson process with intensity parameter 2; and that conditional on the arrival of competition, the development option becomes worthless (i.e., drops in value to zero). Compute the value of the option, F(L), and the optimal exercise policy, L, under this competition scenario. c. Compare the optimal exercise…1. What are three significant differences between income property finance and owner occupied single family residential finance 2. You are considering a loan or investment in an income property. The projected DSCR is too low relative to like properties. What does that potentially tell you? 3. You are considering a loan or investment in an income property. The market Cap Rate is significantly higher than suggested by current NOI on the subject property relative to the asking price. Discuss the implications and potential causes,3.Buyers of put options anticipate the value of the underlying asset will ____________________ and sellers of call options anticipate the value of the underlying asset will _________________. a. increase; increase b. decrease; increase c. increase; decrease d. decrease; decrease e. cannot tell without further information
- If investors buy properties based on expected future benefits, what is the rationale for appraising property based on current cap rates without making any income or resale price projections?Which of the following statement is correct Select one: a. A project is accepted when profitability index will be greater than one b. All statements are correct c. A project is accepted when net present value is greater than zero d. A project is accepted when payback period is less than the other projectTRUE or FALSE 1. If all individual B/C ratios of MEAs are less than 1.00, then the preferred option is to “Do Nothing”.2. The concept of individual projects stems from the B/C ratio each project has to offer. Once it is feasible (i.e., BC >1), MEAs are born.3. Replacement analysis should be done at the end of the useful life of the property.4. If there is a past estimation error, there is a need to replace the property immediately.5. The physical life is always greater than all the other “life” factors under replacement analysis.6. If breakeven analysis is conducted with PW analysis for different MEAs, it doesn’t guarantee that the fastestalternative to reach its breakeven point has also the highest equivalent worth.7. In depreciation analysis, the method that will yield the highest book value at the end of n years is always the topfactor to consider.8. Replacement ends depreciation.9. If a property’s market value becomes 0, the owner has no right to sell it at a value > 0 since…
- K Fabulous Fabricators needs to decide how to allocate space in its production facility this year is considering the following contra a. What are the profitability indexes of the projects? b. What should Fabulous Fabricators de? What are the profitability indexes of the projects? The profitability index for contract Ais (Round to be decimal places) Round to two decimal places) The profitablity index for contract Dis The profitability index for contract CH b. What should Fabulous Fabrators do? (Select the best choice below) OA It should take the two projects with the highest profitability indexes C and A OB. Since it has the capacity to do both Band C and NPV NPV is greater than NPV, it should do to and C OC. Since the NPV of A is the largest, it should choose A OD. Since the profitability indes for the largest, it should choose C Data table (Click on the following icon in order to copy its contents into a spread) Contract Use of Facility 100% 55% 45% C $2.02 m $105 min $1.46 milion…A local real estate investor in Orlando is considering three alternative investments: a motel, a restaurant, or a theater. Profits from the motel or restaurant will be affected by the availability of gasoline and the number of tourists; profits from the theater will be relatively stable under any conditions. The following payoff table shows the profit or loss that could result from each investment. Based on the Maximax criteria, the investor should choose Investment Motel Restaurant Theater Motel Restaurant O Theater O Any of the three Shortage $-8,000 2,000 6,000 Gasoline Availability Stable Supply $15,000 8,000 6,000 Surplus $20,000 6,000 5,000If for a certain project the income of the development is received later than the costs are incurred, a/an in the effective rate of interest will lead the discounted payback period to Select one: a. Decrease, increase b. Increase, increase c. No mutual relationship between the two. d. Decrease/lncrease, stay constant
- Which best defines Market Value? Group of answer choices: Whatever the market will bear. Most probable selling price, assuming “normal” sale conditions What an investor is willing to pay for a property. The appraised value.Evaluation of Projects or ME Alternatives based on different Economic Worth Analysis: AW analysis of one project Choose... ROR analysis of two alternatives Choose... PW analysis of one project Choose... • ROR analysis of one project Choose... 0 PW analysis of ME Alternatives Choose... The remaining undepreciated capital investment in year t is called: Select one: O a BVt O b. P OC B O d. MV Although land is considered as real property, it is not depreciable. Select one: O True O Falsea. Cobre Company is considering the purchase of new equipment that will speed up the process for extracting copper. The equipment will cost $3,800,000 and have a life of 5 years with no expected salvage value. The expected cash flows associated with the project are as follows: Year Cash Revenues Cash Expenses $6,000,000 $4,800,000 6,000,000 4,800,000 3 6,000,000 4,800,000 4 6,000,000 4,800,000 6,000,000 4,800,000 b. Emily Hansen is considering investing in one of the following two projects. Either project will require an investment o $75,000. The expected cash revenues minus cash expenses for the two projects follow. Assume each project is depreciable. Year Project A Project B 1. $2,500 $22,500 2 30,000 30,000 45,000 45,000 4 75,000 22,500 75,000 22,500 c. Suppose that a project has an ARR of 30% (based on initial investment) and that the average net income of the project is $220,000. d. Suppose that a project has an ARR of 50% and that the investment is $250,000. 3.