Part I. The following multiple choice questions are worth 4 points each. Provide the single best response. 1. Which of the following expenses would NOT be included in an operating statement used to calculate net operating income in the income approach to value?a. Property taxesb. Flood insurancec. Liability insuranced. Maintenance and repairse. New roof2. A property produces a first year NOI of $24,000. Because of the long economic life of the building, the income is considered a perpetuity that will grow at 2.5% a year. Using a discount rate of 11.5%, what value has the property?a. $266,667b. $208,695c. $258,947d. $342,857e. Insufficient information is provided to allow a clear answer3. A property is purchased for $15 million. Financing is obtained with a 75% loan-to-value ratio with annual payments of $1,179,000. The property producesan NOI of $1.4 million. What is this property’s equity dividend rate?a. 5.89%b. 9.33%c. 37.33%d. 7.86%e. 8.64%4. A property produces a first year NOI of $100,000 that is expected to grow by 4% per year. If the property is expected to be sold at the end of year 3, what is the expected sales price based on a capitalization rate of 9.5% applied to the 3rd year’s NOI? (Hint: think V=I/R)a. $1,219,000b. $1,095,158c. $1,138,526d. $1,116,737e. $1,257,9925. Of the appraisal methods considered in class, which is the most appropriate for estimating the value of a single-family dwelling?a. Cost approachb. Income approachc. Sales comparison approachd. Equity dividend ratee. Debt service coverage ratio6. When considering a home purchase, which of the following measures is most meaningful to the homebuyer? (There is a SINGLE best response!)a. Debt service coverage ratiob. Equity dividend ratec. Monthly debt serviced. Annual CFBTe. Annual CFAT7. An investment property yields cash flows after debt service of $3,000, $4,000 and $48,000 in each of the next three years. This is good. It is the love of money, and not money standing alone, that is at the root of all evil. Given that you have decided that money is OK, what is the maximum you would you pay for the investment assuming you had borrowed $50,000 and require a pre-tax return on your equity of 20%? (Remember V=D+E). Use the Cash Flow keys!! You are just calculating the present value to the equity investor of these three equity cash flows (these are the cash flows before tax, and the final cash flow is, we assume, the cash flow after the property’s sale. We are ignoring all income and capital gain taxes in this example.)CF0 = 0CO1 = 3,000FO1 = FO2 = FO3 =1CO2 = 4,000CO3 = 48,000CPT NPV, I = 20, NPV = 33,055Add the NPV, that is the value of the equity, add it to the debt! V = D + E = 50,000 + 33,055 = 83,055a. $33,055b. $100,000c. $83,055d. $133,055e. $50,0008. A C corporation has all of the following characteristics except:a. Limited liability to shareholdersb. Liquidity of ownership interestsc. Centralized and efficient managementd. Pass through of tax benefits to shareholderse. Life in perpetuity And part I from another exam:1. From an investment standpoint, a major disadvantage of most real property is that it (A) is very liquid (B) can be depreciated (C) is often heavily leveraged, leading to special risks of default (D) is too difficult to record an ownership interest 2. Which of the following sets of cash flows attract real estate investors? (A) net operating income, debt service and cash flows after tax (B) special tax deferral, tax sheltering and tax avoidance programs (C) mortgage deductions, operating income streams and taxes (D) rental income streams, tax shelters and capital gains 3. To cope with asbestos found in an office building, the EPA suggests which of thefollowing actions? (A) complete removal of all asbestos containing materials (B) removal of only friable asbestos (C) painting over, or sealing off, asbestos containing materials (D) instigate a management plan that involves training personnel, cleaning practices, and monitoring the air 4. Under the Endangered Species Act, a "taking" includes a11 of the following EXCEPT (A) the killing of any wildlife listed as endangered (B) destroying food that may be used by endangered species . (C) habitat modifications that impair behavioral patterns of an endangered species (D) habitat modifications where an endangered species may live in the future 5. Depreciation, or cost recovery, as a deduction is allowed on which of the following assets? (A) land used for business purposes (B) a personal residence (C) a business computer used for personal purposes (D) a personal car used for business purposes 6. The total amount of taxes assessed on real property is determined by the taxing authority's (A) budget requirements (B) estimate of property subject to tax (C) annual appraisal of all property (D) assessed value of taxable property7. The 1986 Tax Act requires depreciation for residential property to be taken over a period of (A) 19 years (B) 27.5 years (C) 39 years (D) its useful life to the taxpayer 8. When an existing building is acquired, an allocation must be made between the value of the land and the value of the building because (A) land is not depreciable (B) capital gain attributed to the land is not subject to tax at time of disposition (C) the building is not eligible for depreciation (D) the land may exceed the building in value 9. Personal property is eligible for depreciation deductions only if (A) it has a life in excess of five years (B) it is purchased in the first quarter of the tax year (C) it meets ADR Guideline requirements (D) it is used for business purposes 10. Something that maintains a property but does not increase its useful life is identified by the IRS as (A) an improvement (B) a replacement (C) an addition (D) a repair 11. For tax purposes, capital gain is the difference between the property's adjusted basis of value and the(A) initial basis of value (B) pay-off of the mortgage loan balance (C) realized selling price (D) market value Part II: Short Answer and Quantitative Applications Number one below is worth ten points. Numbers 2-8 are worth 7 points each. This is a103-point exam. Provide a complete response in the space provided. 1. a) We contrasted real estate and security markets. Define market efficiency and list 5market imperfections that may lead to real estate market inefficiencies.See your class notes, and the text at the beginning of chapter 1.b) Contrast the imperfections above in real