FSU REE4204 Exam 3 Sirmans
The use of debit in income-producing real estate can alter the value of:
a. amount risk of the cash flow to bankers
b. amount of cash flows to equity investors
c. risk of cash flows to equity investors
d. b and c
e. a and b - CORRECT ANSWER D
The following is a NOT a proper list of potential commercial properties:
a. hotels, motels, urban office buildings
b. suburban office buildings, shopping malls, strip centers
c. warehouses, mini-warehouses, theme parks
d. restaurants, fast-food facilities, nursing centers
e. hospitals, apartment complexes, casinos, public schools - CORRECT ANSWER E
A key non-real estate source of property cash flow is:
a. tax shelter
b. managerial talent
c. use of equity financing
d. debt financing
e. all the above - CORRECT ANSWER B
Financial leverage is:
a. the left side of the balance sheet
b. the use of debt to finance real estate
c. the use of equity to finance real estate
d. a and b
e. b and c - CORRECT ANSWER B
Investors purchase multiple properties to:
a. diversify a portfolio
b. maximize investment return
c. minimize risk
d. a and b
e. all of the above - CORRECT ANSWER E
Positive leverage is defined as the use of debt at a cost ________________ than the
return on the asset which __________________ the return on equity.
,a. decreases, increases
b. less, increases
c. increases, decreases
d more, decreases
e equal, increases - CORRECT ANSWER B
Using the formula ROE = [NOI - rD] /Equity, the term positive leverage implies that the
return On equity is ________________ than the return on assets if the cost of debt "r" is
___________ than ROA where ROA = NOI/EQUITY.
a. greater, less
b. less, greater
c. minimal, maximized
d. a and b
e. a and c - CORRECT ANSWER A
In any property cash flows are derived from two avenues:
a. operating cash flows
b. from sale of property
c. management costs
d. a and c
e. a and b - CORRECT ANSWER E
Depreciation is defined as a _______________ but not a cash outlay.
a. cash expense
b. tax deductible expense
c. production cost
d. part of your cash flow
e. none of the above - CORRECT ANSWER B
Residential income property is depreciated over:
a. 15 years
b . 3 0 years
c. 39 years
d. 27.5 years
e. 20 years - CORRECT ANSWER D
Tax law changes that would affect the value of real estate include:
a. changes in marginal rates (bracket rates)
b. changes in depreciation allowance
c. changes in capital gains rates
, d. all of the above - CORRECT ANSWER D
Factors that affect the value of tax savings from depreciation include:
a. amount of depreciation
b. acceleration of depreciation
c. the marginal tax rate
d. all of the above - CORRECT ANSWER D
The Tax Act of 1993 raised the marginal tax rates on ordinary income to:
a. 28%
b. 39.6%
c. 51.8%
d. 42.5% - CORRECT ANSWER B
A test that determines if the original issue discount (OID) rules apply is the:
a. time value of money test
b. adequacy of interest test
c. risk-return test
d. a and b
e. b and c - CORRECT ANSWER D
Loan discount points:
a. lower the effective yield to the lender
b. raise the effective yield to the lender
c. have no effect on the effective yield but raises the contract rate
d. none of the above - CORRECT ANSWER B
Generally, the capital loss limitation rule allows taxpayers to offset capital losses
against:
a. ordinary income
b. capital gains
c. passive gains
d. portfolio income - CORRECT ANSWER B
Income from a limited partnership is classified as:
a. active
b. passive
c. portfolio
d. deferred - CORRECT ANSWER B
The use of debit in income-producing real estate can alter the value of:
a. amount risk of the cash flow to bankers
b. amount of cash flows to equity investors
c. risk of cash flows to equity investors
d. b and c
e. a and b - CORRECT ANSWER D
The following is a NOT a proper list of potential commercial properties:
a. hotels, motels, urban office buildings
b. suburban office buildings, shopping malls, strip centers
c. warehouses, mini-warehouses, theme parks
d. restaurants, fast-food facilities, nursing centers
e. hospitals, apartment complexes, casinos, public schools - CORRECT ANSWER E
A key non-real estate source of property cash flow is:
a. tax shelter
b. managerial talent
c. use of equity financing
d. debt financing
e. all the above - CORRECT ANSWER B
Financial leverage is:
a. the left side of the balance sheet
b. the use of debt to finance real estate
c. the use of equity to finance real estate
d. a and b
e. b and c - CORRECT ANSWER B
Investors purchase multiple properties to:
a. diversify a portfolio
b. maximize investment return
c. minimize risk
d. a and b
e. all of the above - CORRECT ANSWER E
Positive leverage is defined as the use of debt at a cost ________________ than the
return on the asset which __________________ the return on equity.
,a. decreases, increases
b. less, increases
c. increases, decreases
d more, decreases
e equal, increases - CORRECT ANSWER B
Using the formula ROE = [NOI - rD] /Equity, the term positive leverage implies that the
return On equity is ________________ than the return on assets if the cost of debt "r" is
___________ than ROA where ROA = NOI/EQUITY.
a. greater, less
b. less, greater
c. minimal, maximized
d. a and b
e. a and c - CORRECT ANSWER A
In any property cash flows are derived from two avenues:
a. operating cash flows
b. from sale of property
c. management costs
d. a and c
e. a and b - CORRECT ANSWER E
Depreciation is defined as a _______________ but not a cash outlay.
a. cash expense
b. tax deductible expense
c. production cost
d. part of your cash flow
e. none of the above - CORRECT ANSWER B
Residential income property is depreciated over:
a. 15 years
b . 3 0 years
c. 39 years
d. 27.5 years
e. 20 years - CORRECT ANSWER D
Tax law changes that would affect the value of real estate include:
a. changes in marginal rates (bracket rates)
b. changes in depreciation allowance
c. changes in capital gains rates
, d. all of the above - CORRECT ANSWER D
Factors that affect the value of tax savings from depreciation include:
a. amount of depreciation
b. acceleration of depreciation
c. the marginal tax rate
d. all of the above - CORRECT ANSWER D
The Tax Act of 1993 raised the marginal tax rates on ordinary income to:
a. 28%
b. 39.6%
c. 51.8%
d. 42.5% - CORRECT ANSWER B
A test that determines if the original issue discount (OID) rules apply is the:
a. time value of money test
b. adequacy of interest test
c. risk-return test
d. a and b
e. b and c - CORRECT ANSWER D
Loan discount points:
a. lower the effective yield to the lender
b. raise the effective yield to the lender
c. have no effect on the effective yield but raises the contract rate
d. none of the above - CORRECT ANSWER B
Generally, the capital loss limitation rule allows taxpayers to offset capital losses
against:
a. ordinary income
b. capital gains
c. passive gains
d. portfolio income - CORRECT ANSWER B
Income from a limited partnership is classified as:
a. active
b. passive
c. portfolio
d. deferred - CORRECT ANSWER B
