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UNCW FIN 431 - FIN 431 Exam III Review

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Part I: The following questions are worth 3 points each. Please provide the single best response.1. Requirements for a tax-deferred exchange include all of the following except:a. The replacement property is “like-kind.”b. The replacement property purchase take place within 180 days of the appreciatedproperty’s sale.c. Funds from the appreciated property sale must be held by an approved escrowagent such as an attorney or insurance company.d. Funds from the appreciated property sale must be entirely reinvested in thereplacement property.e. If a sale does not take place within 45 days of the appreciated property’s sale, thenthe investor needs to provide the escrow agent a list of “prospective” propertiesbefore the 45 days pass.2. A property has an equity-dividend rate of 20%, this means that:a. An investor can expect to receive $20 for every $100 invested in the property.b. An investor will receive $20 in a given year, for each $1000 invested in theproperty, before allowing for taxes or principal reductions on the mortgage.c. An investor will receive $20 in a given year, for each $100 invested in theproperty, before allowing for taxes or principal reductions on the mortgage.d. The after-tax cash on cash return on the property is 20%.e. The investor is receiving a dividend of 20% for investing in a real estatesyndicate.3. A property has a CFBT of $25,000 and the owner paid 20% down on a $500,000property. Ignoring taxes and closing costs, what is the owner’s EDR?a. Cannot be discovered from the information given.b. 2.5%c. $25,000d. 25%e. 20%4. A property is found to have an NIM of 12. On a rate of return basis, the dollar returnfor an unlevered property into which the investor has invested $1,000,0000 would be:a. Cannot be determined from the information given.b. .0833c. $125,000d. $83,333e. $12,000,0005. A property has a Gross Income Multiplier of 4. This means:a. The property might be an unusual investment.b. If purchased, the investor would be paying a multiple of 4 times gross income.c. Gross income represents 25% of the investment value.d. None of the above.e. A-C above6. A loan to value ratio of 75% means that:a. There is 15 cents of equity in the property for each dollar of debt.b. There is 25 cents of equity in the property for each dollar of debt.c. There is 25 cents of equity in the property for each 75 cents of debt.d. There is 75 cents of equity in the property for each dollar of debt.e. Who knows?7. A property has an NOI of $16,000 10% vacancies and bad debts, operating expensesof $20,000 and debt service of $12,000. It has a breakeven ratio of:a. 150%b. 95%c. 90%d. 80%e. 77.8%8. The property in question 7 has a DSCR of:a. 1.25b. 1.11c. 1.33d. 1.67e. .759. The property in question 7 has an operating expense ratio of:a. .50 b. .56c. .9375d. .75e. .6010. The property in question 7 has an operating cash return, after debt service but beforetaxes of:a. $12,000b. $16,000c. $4,000d. $40,000e. $8,00011. If the property in question 7 would attract investment capital at a rate of return of12%, what would be the market value of that investment?a. $120,000b. $166,667c. $133,333d. $160,000e. $200,00012. For the property in question 7, assume an investor secures her equity-stake with a$20,000 down payment. What is the EDR for this investor, given the informationprovided?a. 20%b. 10%c. 25%d. 16.67%e. 11.11%13. The definition of an internal rate of return is:a. The present value of a future sum.b. The present value of a set of future cash flows exactly equated with the cost ofpurchasing those cash flows, where the discount rate used to discount the futurecash flows is happy.c. The present value of a set of future cash flows exactly equated with the costof purchasing those cash flows, where the discount rate used to discount thefuture cash flows is the internal rate of return.d. A rate, expressed in dollars, that equates all cash outflows with all cash inflows.e. None of the above.14. A 1031 property with an adjusted basis of $600,000 is sold for $1 million cash. Nodebt exists for either the property being sold nor its replacement. The replacementproperty is purchased for $800,000. What is the adjusted basis of the replacementproperty?a. $600,000b. $800,000c. $700,000d. $480,000e. $400,00015. Assuming the seller in question 14 is subject to a 20-% capital gains tax rate, whatwill be his capital gains tax on the sale for the year following the section 1031exchange?a. 0b. $16,000c. $40,000d. $64,000e. $12,80016. Statistical measure(s) of the riskiness of an investment include:a. Homogeneityb. Standard deviationc. Illiquidityd. A – C abovee. Bob17. Real estate investments typically generate these types of cash flows:a. Rental income, capitol flows and tax sheltersb. Rental income, capital losses and tax effectsc. Capital gains/losses, rental income streams and tax sheltersd. Wilma, Fred and Barneye. Tax effects, rental income or losses, sales price18. The economic forces driving real estate investment values in the early 1980’s included:a. Tax shelter benefits and appreciation potential.b. Attractive cash yields on the underlying property.c. Both A and B.d. Neither A nor B, as ERTA was in place in the early 1980’s.e. Maximization of taxable income, with allowances for cost minimizations.19. A lower capital gains tax rate on qualified real estate sales might:a. Cause more investment grade property to be given to charity.b. Cause investment values to increase, all things else being equal.c. Cause long-term gains in revenue to the US Treasury.d. All of the above.e. Two of the above.Part II: The following 7 questions are worth 6 points each. This is a 99-point exam. (You get onepoint for “free.”) Provide a complete response in the space provided. (Do these problems onyour own, and bring your answers to class) 1. You are refinancing today a mortgage you initiated 10 years ago. You borrowed $750,000for 20 years with monthly payments of $6,350. What is your new payment assuming anew rate of 5%, and a new 10 year term?First, the original mortgage, using your BA II Plus:750,000 PV240 N-6,350 PMTCPT I/Y = .6803120 N CPT FV = 519,661 (calculating the mortgage balance in 10 years or 120 months)Second, the payment on the refinanced mortgage:519,661 PV120 N (for the remaining ten years of monthly payments)5/12 = I/Y (the new interest rate)CPT PMT = -5,512 (the new payment)2. What are five typical


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