TCU Real Estate Valuation Kristin Smith Exam 2 –
Questions With Detailed Solutions
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Terms in this set (288)
Time Value of Money Money today is worth more than future money.
Present Value Current worth of future cash flows discounted back.
Discounting Process Calculating present value from future cash flows.
Opportunity Cost Potential returns from alternative investments.
Compound Interest Theory Interest earned on both principal and accumulated
interest.
Discount Rate Rate used to calculate present value of cash flows.
Internal Rate of Return (IRR) Rate that makes NPV of cash flows zero.
Net Present Value (NPV) Present value minus initial investment.
,Reversionary Cash Flow Cash flow from selling property at hold period's
end.
Operating Cash Flow Cash generated from property operations.
Interest Rate Rate of return or yield expected by investors.
Risk Premium Additional return for taking on investment risk.
Risk-Free Rate Return on US Treasury securities, considered safe.
Underlying Asset Risk Premium Extra return for risks associated with the asset.
Credit Worthiness Assessment of the likelihood of cash flow reliability.
Minimum Required Rate of Return Lowest return investors accept for an investment.
Present Value Formula PV = Cash flow / (1 + r)^t.
Cash Flow Timing When cash flows are expected to occur.
Lease Structures Terms and conditions of property leases.
Market Conditions Current economic factors affecting property value.
Multiple IRRs Occurs when cash flow signs change multiple times.
Positive NPV Indicates a project exceeds the required return.
Expected Future Cash Flows Projected income from an investment over time.
Present Value (PV) Current worth of future cash flows.
Level Income Stream Equal cash flows received over time.
, Differing Income Stream Variable cash flows received over time.
Discount Rate Rate used to discount future cash flows.
Internal Rate of Return (IRR) Discount rate that makes PV zero.
Discounted Cash Flow (DCF) Valuation method assessing investment profitability.
Capitalization Rate (Cap Rate) Ratio of cash flow to property value.
Net Operating Income (NOI) Income after operating expenses but before taxes.
Market Value Estimated worth of a property in market. NOI / Cap
rate
Exit Cap Rate Rate of return at investment's end.
Proforma Framework summarizing property performance
metrics. potential revenue, revenue adjustments for
occupancy levels, effective revenue, operating
expenses, NOI, capital expenses, operating CF (NOI
- cap exp), reversion CF
Potential Gross Income (PGI) Total income at full occupancy before expenses.
Effective Gross Income (EGI) Income after accounting for vacancies and losses.
Operating Expenses (OpEx) Costs required to operate a property.
Capital Expenses (CapEx) Funds used for property improvements or repairs.
Reversion Cash Flow Cash flow from sale of property.
Projected Cash Flow Estimated future cash inflows from investment.
Absorption Rate Rate at which available properties are rented.
Questions With Detailed Solutions
Add to calendar
Play your way to mastery with fun games
Match Blocks Charms NEW
Terms in this set (288)
Time Value of Money Money today is worth more than future money.
Present Value Current worth of future cash flows discounted back.
Discounting Process Calculating present value from future cash flows.
Opportunity Cost Potential returns from alternative investments.
Compound Interest Theory Interest earned on both principal and accumulated
interest.
Discount Rate Rate used to calculate present value of cash flows.
Internal Rate of Return (IRR) Rate that makes NPV of cash flows zero.
Net Present Value (NPV) Present value minus initial investment.
,Reversionary Cash Flow Cash flow from selling property at hold period's
end.
Operating Cash Flow Cash generated from property operations.
Interest Rate Rate of return or yield expected by investors.
Risk Premium Additional return for taking on investment risk.
Risk-Free Rate Return on US Treasury securities, considered safe.
Underlying Asset Risk Premium Extra return for risks associated with the asset.
Credit Worthiness Assessment of the likelihood of cash flow reliability.
Minimum Required Rate of Return Lowest return investors accept for an investment.
Present Value Formula PV = Cash flow / (1 + r)^t.
Cash Flow Timing When cash flows are expected to occur.
Lease Structures Terms and conditions of property leases.
Market Conditions Current economic factors affecting property value.
Multiple IRRs Occurs when cash flow signs change multiple times.
Positive NPV Indicates a project exceeds the required return.
Expected Future Cash Flows Projected income from an investment over time.
Present Value (PV) Current worth of future cash flows.
Level Income Stream Equal cash flows received over time.
, Differing Income Stream Variable cash flows received over time.
Discount Rate Rate used to discount future cash flows.
Internal Rate of Return (IRR) Discount rate that makes PV zero.
Discounted Cash Flow (DCF) Valuation method assessing investment profitability.
Capitalization Rate (Cap Rate) Ratio of cash flow to property value.
Net Operating Income (NOI) Income after operating expenses but before taxes.
Market Value Estimated worth of a property in market. NOI / Cap
rate
Exit Cap Rate Rate of return at investment's end.
Proforma Framework summarizing property performance
metrics. potential revenue, revenue adjustments for
occupancy levels, effective revenue, operating
expenses, NOI, capital expenses, operating CF (NOI
- cap exp), reversion CF
Potential Gross Income (PGI) Total income at full occupancy before expenses.
Effective Gross Income (EGI) Income after accounting for vacancies and losses.
Operating Expenses (OpEx) Costs required to operate a property.
Capital Expenses (CapEx) Funds used for property improvements or repairs.
Reversion Cash Flow Cash flow from sale of property.
Projected Cash Flow Estimated future cash inflows from investment.
Absorption Rate Rate at which available properties are rented.
