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(Download PDF) Real Estate Principles A Value Approach 3rd Edition Ling Test Bank Full Chapter
(Download PDF) Real Estate Principles A Value Approach 3rd Edition Ling Test Bank Full Chapter
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Chapter 08 - Valuation Using the Income Approach
Chapter 08
Valuation Using the Income Approach
2. Net operating income is similar to which of the following measures of cash flow in
corporate finance?
A. Dividend yield
B. Earnings before deductions for interest, depreciation, income taxes, and amortization
(EBIDTA)
C. Price-earnings ratio
D. Discount rate
3. The process of converting periodic income into a value estimate is referred to as income
capitalization. Income capitalization models can generally be categorized as either direct
capitalization models or discounted cash flow models. Which of the following statements best
describes the direct capitalization method?
A. Value estimates are based on a multiple of expected first year net operating income.
B. Appraisers must make explicit forecasts of the property's net operating income for each
year of the expected holding period.
C. Appraisers must select the appropriate yield at which to discount future cash flows.
D. The forecast must include the net income produced by a sale of the property at the end of
the expected holding period.
8-1
Chapter 08 - Valuation Using the Income Approach
4. The starting point in calculating net operating income is the total annual income the
property would produce assuming 100 percent occupancy and no collection losses. This is
commonly referred to as:
A. effective Gross Income
B. potential Gross Income
C. operating expenses
D. capital expenditures
5. The distinction between market rent and contract rent is important due to differences in
lease terms. Office, retail, and industrial tenants most commonly occupy their space under
leases that run:
A. one year or less
B. one to three years
C. three to five years
D. ten years or more
6. One complication that appraisers may face is the variety of lease types that may be
available for a particular property type. Which of the following statements best describes a
"graduated" or step-up lease?
A. The monthly rent remains fixed over the entire lease term.
B. The lease establishes schedule of rental rate increases over the term of the lease.
C. Rental rate increases are indexed to the general rate of inflation.
D. Rental rates are a function of the sales of the tenant's business.
7. In calculating net operating income, vacancy losses must be subtracted from the gross
income collected. The normal range for vacancy and collection losses for apartment, office,
and retail properties is:
A. between zero and one percent
B. between one and five percent
C. between five and fifteen percent
D. between fifteen and twenty percent
8-2
Chapter 08 - Valuation Using the Income Approach
9. Operating expenses can be divided into two categories: variable and fixed expenses. Which
of the following best exemplifies a fixed expense?
A. Utilities
B. Property management
C. Property taxes
D. Trash removal
10. Which of these is most likely to be regarded as a capital expenditure rather than an
operating expense?
A. Replacement of broken windows.
B. Landscape expense.
C. Pressure washing of walls.
D. Upgrade of insulation.
11. Most appraisers adhere to an "above-line" treatment of capital expenditures. This implies
which of the following?
A. Capital expenditures are subtracted in the calculation of net operating income.
B. Capital expenditures are subtracted from net operating income to obtain a net cash flow
measure.
C. Capital expenditures are added to net operating income.
D. Capital expenditures are excluded from all calculations because they are difficult to
estimate.
8-3
Chapter 08 - Valuation Using the Income Approach
12. The going-in cap rate, or overall capitalization rate, is a measure of the relationship
between a property's current income stream and its price or value. Which of the following
statements regarding cap rates is true?
A. It is a measure of total return since it accounts for future cash flows from operations and
expected appreciation (depreciation) in the market value of the property.
B. It is a discount rate that can be applied to future cash flows.
C. It is analogous to the dividend yield on a common stock.
D. It is the main determinant of a property's value.
13. For smaller income-producing properties, appraisers may use the ratio of a property's
selling price to its effective gross income. This is an example of a:
A. Net operating income
B. Going-out cap rate
C. Going-in cap rate
D. Gross income multiplier
14. Gross income multiplier analysis assumes that the subject and comparable properties are
collecting market rents. Therefore, it is frequently argued that an income multiplier approach
to valuation is most appropriate for which of the following property types?
A. Apartments
B. Office
C. Industrial
D. Retail
15. When using discounted cash flow analysis for valuation, the appraiser must estimate the
sale price at the end of the expected holding period. This price is referred to as the property's:
A. net sale proceeds
B. selling expenses
C. terminal value
D. current market value
8-4
Chapter 08 - Valuation Using the Income Approach
16. When using discounted cash flow analysis for valuation, an appraiser will prepare a cash
flow forecast, often referred to as a:
A. restricted appraisal report
B. net operating income statement
C. direct market extraction
D. pro forma
17. Given the following information, calculate the overall capitalization rate. Sale price:
$950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses: $50,000, and
Operating Expenses: $50,000.
A. 15.8%
B. 21.1%
C. 26.3%
D. 36.8%
18. Given the following information, calculate the net operating income assuming below-line
treatment. Property: 4 office units, Contract Rents per unit: $2500 per month, Vacancy and
collection losses: 15%, Operating Expenses: $42,000, Capital Expenditures: 10%:
A. $48,000
B. $60,000
C. $95,000
D. $102,000
19. Given the following information, calculate the effective gross income. Property: 4 office
units, Contract rents per unit: $2500 per month, Vacancy and collection losses: 15%,
Operating Expenses: $42,000, Capital Expenditures: 10%
A. $100,000
B. $102,000
C. $120,000
D. $135,000
8-5
Chapter 08 - Valuation Using the Income Approach
20. Given the following information, calculate the effective gross income multiplier. Sale
price: $950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses: 15%,
and Miscellaneous Income: $50,000.
A. 0.36
B. 0.30
C. 2.8
D. 3.3
21. Given the following information, calculate the appropriate going-in cap rate using
mortgage-equity rate analysis. Mortgage financing = 75%, Typical debt financing cap rate:
10%, Sale price: $1,950,000, Net operating income: $390,000.
A. 9.6%
B. 10%
C. 12.5%
D. 13.6%
22. Given the following information, calculate the appropriate going-in cap rate using general
constant-growth formula. Overall market discount rate = 12%, Constant growth rate
projection: 3% per year, Sale price: $1,950,000, Net operating income: $390,000, Potential
gross income: $520,000.
A. 8%
B. 9%
C. 10%
D. 11.5%
8-6
Chapter 08 - Valuation Using the Income Approach
Difficulty: Basic
Learning Objective: 1
2. Net operating income is similar to which of the following measures of cash flow in
corporate finance?
A. Dividend yield
B. Earnings before deductions for interest, depreciation, income taxes, and amortization
(EBIDTA)
C. Price-earnings ratio
D. Discount rate
Difficulty: Basic
Learning Objective: 1
3. The process of converting periodic income into a value estimate is referred to as income
capitalization. Income capitalization models can generally be categorized as either direct
capitalization models or discounted cash flow models. Which of the following statements best
describes the direct capitalization method?
A. Value estimates are based on a multiple of expected first year net operating income.
B. Appraisers must make explicit forecasts of the property's net operating income for each
year of the expected holding period.
C. Appraisers must select the appropriate yield at which to discount future cash flows.
D. The forecast must include the net income produced by a sale of the property at the end of
the expected holding period.
Difficulty: Intermediate
Learning Objective: 1
8-7
Chapter 08 - Valuation Using the Income Approach
4. The starting point in calculating net operating income is the total annual income the
property would produce assuming 100 percent occupancy and no collection losses. This is
commonly referred to as:
A. effective Gross Income
B. potential Gross Income
C. operating expenses
D. capital expenditures
Difficulty: Basic
Learning Objective: 1
5. The distinction between market rent and contract rent is important due to differences in
lease terms. Office, retail, and industrial tenants most commonly occupy their space under
leases that run:
A. one year or less
B. one to three years
C. three to five years
D. ten years or more
Difficulty: Intermediate
Learning Objective: 1
6. One complication that appraisers may face is the variety of lease types that may be
available for a particular property type. Which of the following statements best describes a
"graduated" or step-up lease?
A. The monthly rent remains fixed over the entire lease term.
B. The lease establishes schedule of rental rate increases over the term of the lease.
C. Rental rate increases are indexed to the general rate of inflation.
D. Rental rates are a function of the sales of the tenant's business.
Difficulty: Basic
Learning Objective: 1
8-8
Chapter 08 - Valuation Using the Income Approach
7. In calculating net operating income, vacancy losses must be subtracted from the gross
income collected. The normal range for vacancy and collection losses for apartment, office,
and retail properties is:
A. between zero and one percent
B. between one and five percent
C. between five and fifteen percent
D. between fifteen and twenty percent
Difficulty: Intermediate
Learning Objective: 1
Difficulty: Basic
Learning Objective: 2
9. Operating expenses can be divided into two categories: variable and fixed expenses. Which
of the following best exemplifies a fixed expense?
A. Utilities
B. Property management
C. Property taxes
D. Trash removal
Difficulty: Intermediate
Learning Objective: 2
8-9
Chapter 08 - Valuation Using the Income Approach
10. Which of these is most likely to be regarded as a capital expenditure rather than an
operating expense?
A. Replacement of broken windows.
B. Landscape expense.
C. Pressure washing of walls.
D. Upgrade of insulation.
Difficulty: Intermediate
Learning Objective: 2
11. Most appraisers adhere to an "above-line" treatment of capital expenditures. This implies
which of the following?
A. Capital expenditures are subtracted in the calculation of net operating income.
B. Capital expenditures are subtracted from net operating income to obtain a net cash flow
measure.
C. Capital expenditures are added to net operating income.
D. Capital expenditures are excluded from all calculations because they are difficult to
estimate.
Difficulty: Basic
Learning Objective: 2
12. The going-in cap rate, or overall capitalization rate, is a measure of the relationship
between a property's current income stream and its price or value. Which of the following
statements regarding cap rates is true?
A. It is a measure of total return since it accounts for future cash flows from operations and
expected appreciation (depreciation) in the market value of the property.
B. It is a discount rate that can be applied to future cash flows.
C. It is analogous to the dividend yield on a common stock.
D. It is the main determinant of a property's value.
Difficulty: Intermediate
Learning Objective: 3
8-10
Chapter 08 - Valuation Using the Income Approach
13. For smaller income-producing properties, appraisers may use the ratio of a property's
selling price to its effective gross income. This is an example of a:
A. Net operating income
B. Going-out cap rate
C. Going-in cap rate
D. Gross income multiplier
Difficulty: Basic
Learning Objective: 5
14. Gross income multiplier analysis assumes that the subject and comparable properties are
collecting market rents. Therefore, it is frequently argued that an income multiplier approach
to valuation is most appropriate for which of the following property types?
A. Apartments
B. Office
C. Industrial
D. Retail
Difficulty: Intermediate
Learning Objective: 5
15. When using discounted cash flow analysis for valuation, the appraiser must estimate the
sale price at the end of the expected holding period. This price is referred to as the property's:
A. net sale proceeds
B. selling expenses
C. terminal value
D. current market value
Difficulty: Basic
Learning Objective: 1
8-11
Chapter 08 - Valuation Using the Income Approach
16. When using discounted cash flow analysis for valuation, an appraiser will prepare a cash
flow forecast, often referred to as a:
A. restricted appraisal report
B. net operating income statement
C. direct market extraction
D. pro forma
Difficulty: Basic
Learning Objective: 6
17. Given the following information, calculate the overall capitalization rate. Sale price:
$950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses: $50,000, and
Operating Expenses: $50,000.
A. 15.8%
B. 21.1%
C. 26.3%
D. 36.8%
Difficulty: Basic
Learning Objective: 4
18. Given the following information, calculate the net operating income assuming below-line
treatment. Property: 4 office units, Contract Rents per unit: $2500 per month, Vacancy and
collection losses: 15%, Operating Expenses: $42,000, Capital Expenditures: 10%:
A. $48,000
B. $60,000
C. $95,000
D. $102,000
Difficulty: Intermediate
Learning Objective: 4
8-12
Chapter 08 - Valuation Using the Income Approach
19. Given the following information, calculate the effective gross income. Property: 4 office
units, Contract rents per unit: $2500 per month, Vacancy and collection losses: 15%,
Operating Expenses: $42,000, Capital Expenditures: 10%
A. $100,000
B. $102,000
C. $120,000
D. $135,000
Difficulty: Basic
Learning Objective: 4
20. Given the following information, calculate the effective gross income multiplier. Sale
price: $950,000, Potential Gross Income: $250,000, Vacancy and Collection Losses: 15%,
and Miscellaneous Income: $50,000.
A. 0.36
B. 0.30
C. 2.8
D. 3.3
Difficulty: Basic
Learning Objective: 5
21. Given the following information, calculate the appropriate going-in cap rate using
mortgage-equity rate analysis. Mortgage financing = 75%, Typical debt financing cap rate:
10%, Sale price: $1,950,000, Net operating income: $390,000.
A. 9.6%
B. 10%
C. 12.5%
D. 13.6%
Difficulty: Intermediate
Learning Objective: 4
8-13
Chapter 08 - Valuation Using the Income Approach
22. Given the following information, calculate the appropriate going-in cap rate using general
constant-growth formula. Overall market discount rate = 12%, Constant growth rate
projection: 3% per year, Sale price: $1,950,000, Net operating income: $390,000, Potential
gross income: $520,000.
A. 8%
B. 9%
C. 10%
D. 11.5%
Difficulty: Intermediate
Learning Objective: 4
8-14
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(above), boundary between pairing animals; (below), first fission; single
vertical line, continuity or enlargement. M, Meganucleus; µ, micronucleus;
Z, zygote-nucleus.
In the Peritrichaceae the mates are unequal; the larger is the normal
cell, and is fixed; the smaller, mobile, is derived from an ordinary
individual by brood-divisions, which only occur under the conditions
that induce conjugation (Fig. 60). Here, though the two pairs of
nuclei are formed, it is only the migratory nuclei that unite, the
stationary ones aborting in both mates. During the final processes of
conjugation the smaller mate is absorbed into the body of the larger,
and so plays the part of male there. But this process, though one of
true binary sex, is clearly derived from the peculiar type of equal
reciprocal conjugation of the other Infusoria.
The Ciliata are almost all free-swimming animals with the exception
of most of the Peritrichaceae, and of the genera we now cite.
Folliculina forms a sessile tube open at either end; and Schizotricha
socialis inhabits the open mouths of a branching gelatinous tubular
stem, obviously secreted by the hinder end of the animal, and forking
at each fission to receive the produce. A similar habit to the latter
characterises Maryna socialis; all three species are marine, and
were described by Gruber.[168] Stentor habitually attaches itself by
processes recalling pseudopodia, and often forms a gelatinous
sheath.
Acineta, Ehrb. (Fig. 61, 2); Amoebophrya, Koppen; Choanophrya, Hartog (Fig.
62); Dendrocometes, St. (Fig. 61, 4); Dendrosoma, Ehrb. (Fig. 61, 9);
Endosphaera, Engelm.; Ephelota, Str. Wright (Fig. 61, 5, 8); Hypocoma,
Gruber; Ophryodendron, Cl. and L. (Fig. 61, 7); Podophrya, Ehrb. (Fig. 61, 1);
Rhyncheta, Zenker (Fig. 61, 3); Sphaerophrya, Cl. and L. (Fig. 61, 6),
Suctorella, Frenzel; Tokophrya, Bütschli.
BY
CHAPTER VII
PORIFERA (SPONGES)[185]
INTRODUCTION—HISTORY—DESCRIPTION OF H A L I C H O N D R I A
P A N I C E A AS AN EXAMPLE OF BRITISH MARINE SPONGES AND OF
E P H Y D A T I A F L U V I A T I L I S FROM FRESH WATER—DEFINITION—
POSITION IN THE ANIMAL KINGDOM.
The familiar bath sponge was naturally the earliest known member of
the phylum. It is dignified by mention in the Iliad and in the Odyssey,
and Homer, in his choice of the adjective "full of holes," πολύτρητος,
shows at least as much observation as many a naturalist of the
sixteenth and seventeenth centuries. Aristotle based his ideas of
sponges entirely upon the characters of the bath sponge and its near
allies, for these were the only kinds he knew. With his usual
perspicuity he reached the conclusion that sponges are animals,
though showing points of likeness to plants.
It was not till 1825 that attention was again turned to the current,
when Robert Grant approached the group in a truly scientific
manner, and was ably supported by Lieberkühn. It would be
impossible to do justice to Grant in the brief summary to which we
must limit ourselves. The most important of his contributions was the
discovery that water enters the sponge by small apertures scattered
over the surface, and leaves it at certain larger holes, always
pursuing a fixed course. He made a few rough experiments to
estimate the approximate strength of the current, and, though he
failed to detect its cause, he supposed that it was probably due to
ciliary action. Grant's suggestion was afterwards substantiated by
Dujardin (1838), Carter (1847), Dobie (1852), and Lieberkühn
(1857). These five succeeded in establishing the claims of sponges
to a place in the animal kingdom, claims which were still further
confirmed when James-Clark[190] detected the presence of the
protoplasmic collar of the flagellated cells (see pp. 171, 176). Data
were now wanted on which to base an opinion as to the position of
sponges within the animal kingdom. In 1878 Schulze[191] furnished
valuable embryological facts, in a description agreeing with an earlier
one of Metschnikoff's, of the amphiblastula larva (p. 226) and its
metamorphosis. Then Bütschli[192] (1884) and Sollas[193] on
combined morphological and embryological evidence (1884)
concluded that sponges were remote from all the Metazoa, showing
bonds only with Choanoflagellate Protozoa (p. 121). This the exact
embryological work of Maas, Minchin, and Delage has done much to
prove, but it has to be admitted that unanimity on the exact position
of the phylum has not yet been attained, some authorities, such as
Haeckel, Schulze, and Maas still wishing to include sponges in the
Metazoa.
Halichondria panicea.
One of the commonest of British sponges, which may be picked up
on almost any of our beaches, and which has also a cosmopolitan
distribution, is known by the clumsy popular name of the "crumb of
bread sponge," alluding to its consistency; or by the above technical
name, with which even more serious fault may be found.[194]
Bidder has proposed to call the different forms of the same species
"metamps" of the species. Figures of the metamps of H. panicea will
be found in Bowerbank's useful Monograph.[195]
Sections show that the ostia lead into spaces below the thin
superficial layer or "dermal membrane"; these are continued down
into the deeper parts of the sponge as the "incurrent canals,"
irregular winding passages of lumen continually diminishing as they
descend. They all sooner or later open by numerous small pores
—"prosopyles"—into certain subspherical sacs termed flagellated
chambers. Each chamber discharges by one wide aperture
—"apopyle"—into an "excurrent canal." This latter is only
distinguishable from an incurrent canal by the difference in its mode
of communication with the chambers.
Fig. 64.—H. panicea: the arrows indicate the direction of the current, which is
made visible by coloured particles. (After Grant.)
The excurrent canals convey to the osculum the water which has
passed through the ostia and chambers. All the peripheral parts of
the sponge from which chambers are absent are termed the
"ectosome," while the chamber-bearing regions are the
"choanosome."