BU403 Quiz 4 Exam With Complete Solutions
If we increase the royalty payments by $150 thousand but leave all other facts the same
in the "The Able Case", what will be the ratio of adjusted EBITDA to contractual
payments? Your answer should be reported to two decimal places - ANSWER 1.44
A plumber finished his work on a property owned by JZ company on February 1, 2019.
He registered a lien on the property on February 20, 2019. The claim of the plumber
ranks ahead of that of the municipality for property taxes owing - ANSWER True
Estimate the value of the property using the income approach based on the following
facts:
Net operating income annually for next 3 years is $400000
At end of three years, property is sold with an exiting cap rate of 8% and a commission
of 4% on sale
The discount cap rate is the same as the exiting cap rate and the operating income is
assumed to be received at year end.
Express your answer to the closest dollar. - ANSWER 4841234
An apartment building owner is interested in a mortgage from a Canadian bank. What is
the largest monthly mortgage payment that would be allowed given the following facts:
square footage of property is 45000
rental rate is $25 per square foot per month
cost of rental property associated with vacancy, maintenance and credit losses is 10%
of rental income
minimum debt service ratio is 1.3
Express your answer in dollars to the nearest dollar - ANSWER 778846
Which of the following is true of real estate development?
I) Receiving a variance from a bylaw from the city will generally increase the value of a
property.
II) Environmental testing on a greenfield property is more likely to reach phase 2 than on
a brownfield property - ANSWER I only
A company is in bankruptcy. The Canada Revenue Agency is owed $35,000 by the
company for unremitted source deductions. The company is in default on a mortgage
that is secured on its property. In terms of order of priority on bankruptcy, the mortgage
,holder ranks ahead of the Canada Revenue Agency. - ANSWER False
Which of the following is true of promoter's stock?
I) The larger the amount of promoter's stock, the smaller the amount of funds that must
be raised.
II) Promoter's stock usually gets a dividend preference over other classes of shares -
ANSWER Neither I nor II
Alpha Company wants to secure the lowest cost sources of financing for its expansion.
The company's only assets are $20000 in inventory and $35000 in fixed assets. The
company's banker set a minimum current ratio of 1.3 and a maximum debt to equity ratio
of 2.0. What is the minimum amount of equity that the company can have? Express your
answer to the nearest dollar. - ANSWER 18333
You are a banker who provided a $150000 mortgage to a borrower to acquire some real
estate, the borrower's only asset. The borrower also had $40000 in unsecured debt
from another lender. If the borrower defaults on the mortgage and the property sells for
$65000, what will you receive in proceeds? Express your answer to the nearest dollar. -
ANSWER 65000
What are common features of mezzanine financing?
I) The companies financed generally have excellent free cash flow.
II) There are generally no prepayment penalties.
III) There is generally equity participation. - ANSWER I), II) and III)
On March 1, 2020 you paid a general contractor $50,000 for a kitchen renovation. On
March 4, 2020, an electrician hired by the general contractor finished his work in your
kitchen. On June 1, 2020, the general contractor declared bankruptcy. At that time the
general contractor still had $20,000 of the cash you paid him sitting in his bank account.
However, $30,000 was owed to the electrician and $30,000 was owed to you as an
unsecured creditor with a claim for unfinished work to be completed by other
tradespeople. The contractor had no other liabilities. You can expect to receive $10,000
as a settlement of your claim. - ANSWER False
Which of the following is true of real estate development?
I) Rezoning normally has an impact on the ability of property owner to secure a
mortgage.
II) You are building a warehouse in a commercial district of Waterloo. Your warehouse
will be highly automated and you won't need many workers in your warehouse. In order
to reduce the number of parking spaces as set by by-law, you will likely need to obtain a
variance from city hall.
, III) Phase 3 is likely to be more expensive than phase 2 environment assessment and
remediation. - ANSWER All of I), II) and III)
Golden Hawk Eye Company wants to secure the lowest cost sources of financing for its
expansion. The company's only assets are $40000 in accounts receivable and $70000 in
fixed assets. The company's banker set a minimum current ratio of 2.3 and a maximum
debt to equity ratio of 1.5. What is the maximum amount of total debt that the company
can have? Express your answer to the nearest dollar. - ANSWER 66000
There is a proposal for reorganization before the court. There are two classes of
creditors--the secured and unsecured creditors.
The secured creditors and their claims are as follows:
Bank A -- $250000
Bank B -- $200000
Bank C -- $50000
The three unsecured creditors and their claims are as follows:
Supplier A -- $400000
Supplier B -- $75000
Supplier C -- $25000
Under all voting combinations, which of the following combinations of creditors must
always vote to approve the deal to make it successful in Court? Assume for each
answer, all other creditors vote against the deal. - ANSWER Bank A, Bank B and
Supplier A
What are common features of mezzanine financing?
I) The companies financed with mezzanine financing generally have positive free cash
flow.
II) A term of 1 to 3 years.
III) Specified timing of repayment of principal tends to be later in the life of loan. -
ANSWER I) and III) Only
What is the value of an all equity financed business when the enterprise value to
adjusted EBITDA ratio is 6.0 times given the following facts:
Amortization is $ 1.0 million
Net Loss Before Tax is $0.1 million
If we increase the royalty payments by $150 thousand but leave all other facts the same
in the "The Able Case", what will be the ratio of adjusted EBITDA to contractual
payments? Your answer should be reported to two decimal places - ANSWER 1.44
A plumber finished his work on a property owned by JZ company on February 1, 2019.
He registered a lien on the property on February 20, 2019. The claim of the plumber
ranks ahead of that of the municipality for property taxes owing - ANSWER True
Estimate the value of the property using the income approach based on the following
facts:
Net operating income annually for next 3 years is $400000
At end of three years, property is sold with an exiting cap rate of 8% and a commission
of 4% on sale
The discount cap rate is the same as the exiting cap rate and the operating income is
assumed to be received at year end.
Express your answer to the closest dollar. - ANSWER 4841234
An apartment building owner is interested in a mortgage from a Canadian bank. What is
the largest monthly mortgage payment that would be allowed given the following facts:
square footage of property is 45000
rental rate is $25 per square foot per month
cost of rental property associated with vacancy, maintenance and credit losses is 10%
of rental income
minimum debt service ratio is 1.3
Express your answer in dollars to the nearest dollar - ANSWER 778846
Which of the following is true of real estate development?
I) Receiving a variance from a bylaw from the city will generally increase the value of a
property.
II) Environmental testing on a greenfield property is more likely to reach phase 2 than on
a brownfield property - ANSWER I only
A company is in bankruptcy. The Canada Revenue Agency is owed $35,000 by the
company for unremitted source deductions. The company is in default on a mortgage
that is secured on its property. In terms of order of priority on bankruptcy, the mortgage
,holder ranks ahead of the Canada Revenue Agency. - ANSWER False
Which of the following is true of promoter's stock?
I) The larger the amount of promoter's stock, the smaller the amount of funds that must
be raised.
II) Promoter's stock usually gets a dividend preference over other classes of shares -
ANSWER Neither I nor II
Alpha Company wants to secure the lowest cost sources of financing for its expansion.
The company's only assets are $20000 in inventory and $35000 in fixed assets. The
company's banker set a minimum current ratio of 1.3 and a maximum debt to equity ratio
of 2.0. What is the minimum amount of equity that the company can have? Express your
answer to the nearest dollar. - ANSWER 18333
You are a banker who provided a $150000 mortgage to a borrower to acquire some real
estate, the borrower's only asset. The borrower also had $40000 in unsecured debt
from another lender. If the borrower defaults on the mortgage and the property sells for
$65000, what will you receive in proceeds? Express your answer to the nearest dollar. -
ANSWER 65000
What are common features of mezzanine financing?
I) The companies financed generally have excellent free cash flow.
II) There are generally no prepayment penalties.
III) There is generally equity participation. - ANSWER I), II) and III)
On March 1, 2020 you paid a general contractor $50,000 for a kitchen renovation. On
March 4, 2020, an electrician hired by the general contractor finished his work in your
kitchen. On June 1, 2020, the general contractor declared bankruptcy. At that time the
general contractor still had $20,000 of the cash you paid him sitting in his bank account.
However, $30,000 was owed to the electrician and $30,000 was owed to you as an
unsecured creditor with a claim for unfinished work to be completed by other
tradespeople. The contractor had no other liabilities. You can expect to receive $10,000
as a settlement of your claim. - ANSWER False
Which of the following is true of real estate development?
I) Rezoning normally has an impact on the ability of property owner to secure a
mortgage.
II) You are building a warehouse in a commercial district of Waterloo. Your warehouse
will be highly automated and you won't need many workers in your warehouse. In order
to reduce the number of parking spaces as set by by-law, you will likely need to obtain a
variance from city hall.
, III) Phase 3 is likely to be more expensive than phase 2 environment assessment and
remediation. - ANSWER All of I), II) and III)
Golden Hawk Eye Company wants to secure the lowest cost sources of financing for its
expansion. The company's only assets are $40000 in accounts receivable and $70000 in
fixed assets. The company's banker set a minimum current ratio of 2.3 and a maximum
debt to equity ratio of 1.5. What is the maximum amount of total debt that the company
can have? Express your answer to the nearest dollar. - ANSWER 66000
There is a proposal for reorganization before the court. There are two classes of
creditors--the secured and unsecured creditors.
The secured creditors and their claims are as follows:
Bank A -- $250000
Bank B -- $200000
Bank C -- $50000
The three unsecured creditors and their claims are as follows:
Supplier A -- $400000
Supplier B -- $75000
Supplier C -- $25000
Under all voting combinations, which of the following combinations of creditors must
always vote to approve the deal to make it successful in Court? Assume for each
answer, all other creditors vote against the deal. - ANSWER Bank A, Bank B and
Supplier A
What are common features of mezzanine financing?
I) The companies financed with mezzanine financing generally have positive free cash
flow.
II) A term of 1 to 3 years.
III) Specified timing of repayment of principal tends to be later in the life of loan. -
ANSWER I) and III) Only
What is the value of an all equity financed business when the enterprise value to
adjusted EBITDA ratio is 6.0 times given the following facts:
Amortization is $ 1.0 million
Net Loss Before Tax is $0.1 million
