FIN 306 CH 8 EXAM QUESTIONS WITH VERIFIED SOLUTIONS LATEST UPDATE 2026
Suppose that examination of a pro forma reveals that the fifth year net operating income (NOI) for an
income producing property that you are analyzing is $138,446 (you can assume that this cash flow
occurs at the end of the year). If you estimate the projected growth rate for the property's NOI to be
5% per year, determine the projected sale price of the property at the end of year five if the going-out
capitalization rate is 9%. - Answers $1,615,203.00
The starting point in calculating net operating income is the total annual income the property would
produce assuming 100 percent occupancy and no vacancy or collection losses. This is commonly
referred to as: - Answers potential gross income
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? - Answers it is analogous to the dividend yield on a common stock.
Suppose that an income producing property is expected to yield cash flows for the owner of $150,000
in each of the next five years, with cash flows being received at the end of each period. If the
opportunity cost of investment is 8% annually and the property can be sold for $1,250,000 at the end
of the fifth year, determine the value of the property today. - Answers $1,449,635.50
Suppose that you are attempting to value an income producing property using the direct
capitalization approach. Using data from comparable properties, you have determined the overall
capitalization rate to be 7.5%. If the projected first year net operating income (NOI) for the subject
property is $135,500, what is the indicated value of the subject using direct capitalization? - Answers
$1,806,666.67
Analysis of a subject property's pro forma reveals that its fifth year net operating income (NOI) is
projected to be $100,282 (you can assume that this cash flow occurs at the end of the year). If you
estimate the projected growth rate for the property's NOI to be 3% per year and the going-out
terminal or reversionary capitalization rate in year five to be 10%, determine the net sale proceeds
the current owner of the property would receive if he were to sell the property at the end of year five
and incur selling expenses that amounted to $58,300. - Answers $974,610
The expected costs to make replacements, alterations, or improvements to a building that materially
prolong its life and increase its value is referred to as: - Answers capital expenditures
Using the "Net Operating Income / Cap Rate = Value" formula, given the following information,
calculate the overall capitalization rate.
Sale price: $950,000
Potential Gross Income: $250,000
Vacancy and Collection Losses: $50,000
Operating Expenses: $50,000 - Answers 15.8%
Given the following information, calculate the effective gross income.
Property: 4 office units
Contract rents per unit: $2,500 per month
Vacancy and collection losses: 15%
Operating Expenses: $42,000
Capital Expenditures: 10% - Answers $102,000
Given the following information, calculate the effective gross income multiplier.
Sale price: $950,000
Potential Gross Income: $250,000
Vacancy and Collection Losses: 15%
Miscellaneous Income: $50,000 - Answers 3.6
Three highly similar and competitive income-producing properties within two blocks of the subject
property have sold this month. All three offer essentially the same amenities and services as the
subject property. The sale prices and estimated first-year NOI for each of the comparable properties
are as follows:
Comp 1: sales price 500k, NOI 55k
Comp 2: sales price 420k, NOI 50.4k
Comp 3: sales price 475k, NOI 53.4k - Answers Capitalization rate of A = (NOI / Sale price) ×
100(55,,000) × 100 = 11%
Capitalization rate of B = (NOI / Sale price) × 100(50,,000) × 100 = 12%
Capitalization rate of C = (NOI / Sale price) × 100 =(53,,000) × 100= 11.2%
Suppose that examination of a pro forma reveals that the fifth year net operating income (NOI) for an
income producing property that you are analyzing is $138,446 (you can assume that this cash flow
occurs at the end of the year). If you estimate the projected growth rate for the property's NOI to be
5% per year, determine the projected sale price of the property at the end of year five if the going-out
capitalization rate is 9%. - Answers $1,615,203.00
The starting point in calculating net operating income is the total annual income the property would
produce assuming 100 percent occupancy and no vacancy or collection losses. This is commonly
referred to as: - Answers potential gross income
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? - Answers it is analogous to the dividend yield on a common stock.
Suppose that an income producing property is expected to yield cash flows for the owner of $150,000
in each of the next five years, with cash flows being received at the end of each period. If the
opportunity cost of investment is 8% annually and the property can be sold for $1,250,000 at the end
of the fifth year, determine the value of the property today. - Answers $1,449,635.50
Suppose that you are attempting to value an income producing property using the direct
capitalization approach. Using data from comparable properties, you have determined the overall
capitalization rate to be 7.5%. If the projected first year net operating income (NOI) for the subject
property is $135,500, what is the indicated value of the subject using direct capitalization? - Answers
$1,806,666.67
Analysis of a subject property's pro forma reveals that its fifth year net operating income (NOI) is
projected to be $100,282 (you can assume that this cash flow occurs at the end of the year). If you
estimate the projected growth rate for the property's NOI to be 3% per year and the going-out
terminal or reversionary capitalization rate in year five to be 10%, determine the net sale proceeds
the current owner of the property would receive if he were to sell the property at the end of year five
and incur selling expenses that amounted to $58,300. - Answers $974,610
The expected costs to make replacements, alterations, or improvements to a building that materially
prolong its life and increase its value is referred to as: - Answers capital expenditures
Using the "Net Operating Income / Cap Rate = Value" formula, given the following information,
calculate the overall capitalization rate.
Sale price: $950,000
Potential Gross Income: $250,000
Vacancy and Collection Losses: $50,000
Operating Expenses: $50,000 - Answers 15.8%
Given the following information, calculate the effective gross income.
Property: 4 office units
Contract rents per unit: $2,500 per month
Vacancy and collection losses: 15%
Operating Expenses: $42,000
Capital Expenditures: 10% - Answers $102,000
Given the following information, calculate the effective gross income multiplier.
Sale price: $950,000
Potential Gross Income: $250,000
Vacancy and Collection Losses: 15%
Miscellaneous Income: $50,000 - Answers 3.6
Three highly similar and competitive income-producing properties within two blocks of the subject
property have sold this month. All three offer essentially the same amenities and services as the
subject property. The sale prices and estimated first-year NOI for each of the comparable properties
are as follows:
Comp 1: sales price 500k, NOI 55k
Comp 2: sales price 420k, NOI 50.4k
Comp 3: sales price 475k, NOI 53.4k - Answers Capitalization rate of A = (NOI / Sale price) ×
100(55,,000) × 100 = 11%
Capitalization rate of B = (NOI / Sale price) × 100(50,,000) × 100 = 12%
Capitalization rate of C = (NOI / Sale price) × 100 =(53,,000) × 100= 11.2%
