FINANCE-REA 202 Comprehensive Test

QUESTION

REA 202 Comprehensive Test
Fall 2015
1.
You are considering the purchase of an apartment
building for $2,250,000. You would close on the purchase in January and you
intend to sell the property in December, 5 years later. The land represents 15%
of the price.
a.
What is the depreciation for years 1 and 5?
b.
What is the depreciation for years 2, 3 & 4?
c.
Using a 70% LTV, what would your investment be?
2.
The property has a PGI of $315,000 and operating
expenses totaling $179,059.
a.
With a 5% vacancy rate and other income of
$10,000, what is the Effective Gross Income?
b.
What is the NOI?
c.
With a 1.2 DCR, what is the maximum debt service
this property can have?
3.
The NOI is projected to increase by 5% per year.
If you use a 5% discount rate for the 5 years,
a.
What is your PV for the 5 years?
b.
What is the NPV?
c.
What is your ROI (using the PV?)
4.
When you sell the property at the end of 5 years
ownership you will use a 9% Cap rate.
a.
What will the sales price be if you use the year
5 NOI?
b.
What will the sales price be if you use the year
6 NOI?
c.
How would you justify using the year 6 NOI?
5.
You are looking at purchasing an office building
for $5,000,000. 10% of the purchase price is allocated to the land. What is the
total depreciation for a 5 year ownership that starts in Jan and ends in Dec.
6.
How does the LTV effect your required investment
in purchasing an investment property?
7.
How does the DCR effect your required investment
in purchasing an investment property?
8.
What are the two major expenses deducted from
CFBT to arrive at the taxable income?
9.
Why isn’t the purchase price used to determine
the ROI?
10.
Which would be of more concern to you as an
investor, the CFBT or the ARCF? Why?

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