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LOS f, (Part 1): Calculate the net operating income (NOI) from a real estate investment. ffice ffice" />
Q1. All of the following variables might be factors when calculating the net operating income (NOI) for a property EXCEPT:
A) collection losses.
B) insurance.
C) depreciation.
Correct answer is C)
Insurance expenses and collection losses for a property are all factors in the NOI calculation. Depreciation is not a factor when calculating NOI because a basic, underlying assumption is that routine repairs and maintenance will keep the property in its existing condition.
Q2. An investor is considering purchasing an office building that is currently 95% leased.
Gross potential rental income $105,000
Insurance and taxes $9,000
Repairs and maintenance $15,000
Depreciation $11,000
What is the building's net operating income (NOI), based on the above table?
A) $64,750.
B) $75,750.
C) $81,000.
Correct answer is B)
NOI can be calculated as gross rental income minus vacancy losses, insurance and taxes, and repairs and maintenance. Depreciation is not a factor in calculating NOI. NOI for the building is $105,000 – ($105,000 × 5%) - $9,000 - $15,000 = $75,750.
Q3. Johnson is considering the purchase of Happy Valley Acres, a 300-unit apartment complex. She has hired Carson, CFA, to advise her on the investment. ffice:smarttags" />Carson has estimated the following data for laceName w:st="on">HappylaceName> laceType w:st="on">ValleylaceType>’s next accounting period:
- Potential rental income = $3.80 million.
- Vacancy rate = 3.5%.
- Insurance costs = $250,000.
- Financing costs = $940,000.
- Property taxes = $400,000.
- Utility expense = $120,000.
- Repair costs = $200,000.
- Depreciation = $350,000.
- Required return = 8%.
The property’s net operating income (NOI) and value should be closest to:
NOI Value
A) $2.70 million $33.75 million
B) $2.83 million $33.75 million
C) $2.70 million $21.60 million
Correct answer is A)
NOI = rental income × (1 ? vacancy rate) ? insurance costs ? property taxes ? utility expense ? repair costs
NOI = $3.80 million × (96.5%) ? 250,000 ? 400,000 ? 120,000 ? 200,000 = 2.70 million
Value of building = 2.70 million / 0.08 = 33.75 million
Q4. The portfolio manager of a large real estate investment trust (REIT) has identified an office building as a potential investment. Based upon the following data, what is its net operating income (NOI)?
|
Gross potential rental income |
$235,000 |
|
Estimated vacancy and collection loss rate |
6% |
|
Insurance and taxes |
$15,000 |
|
Repairs and maintenance |
$17,000 |
|
Utilities |
$12,500 |
|
Cost of equity |
11% |
A) $150,550.
B) $176,400.
C) $190,500.
Correct answer is B)
The NOI is $235,000 – ($235,000 × 6%) ? $15,000 ? $17,000 ? $12,500 = $176,400. The cost of equity number is not needed, because the NOI calculation is independent of any financing arrangements
Q5. Net operating income (NOI) is calculated by subtracting which of the following from the property's gross potential rental income?
A) Depreciation.
B) Property taxes.
C) Income taxes.
Correct answer is B)
NOI does not consider income taxes, financing charges, or depreciation.
Q6. The income approach to valuing real estate is most similar to the following method of valuing common stock:
A) Dividend discount model with normal growth.
B) Dividend discount model with zero growth.
C) Price-to-sales ratio.
Correct answer is B)
The income approach for valuing real estate uses the following formula:
Appraised Pricereal estate = annual net operating income (NOI) / Market Capitalization Rate (R)
The dividend discount model (DMM) with zero growth approach for valuing common stock uses the following formula:
Pricecommon stock = Dividend (D) / (Required Rate of Return on the Stock (k) - Growth (g))
When g = 0, the formulas simplify to:
Appraised Pricereal estate = NOI / R
Pricecommon stock = D / k
or, a period cash flow divided by a rate of return.
The DMM with normal growth would not be a correct response because the income approach for real estate assumes a constant (no growth) NOI stream to perpetuity.
Q7. Based upon the following information, what is the net operating income (NOI) of the property?
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Estimated Market Value |
$600,000 |
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Capitalization Rate |
20% |
|
Taxes |
$27,000 |
|
Operating Expenses |
$107,000 |
A) $120,000.
B) $104,000.
C) $98,600.
Correct answer is A)
MV = NOI / CAP
To solve for NOI, rewrite the formula as: MV × CAP = NOI
600,000 × 0.2 = 120,000
[此贴子已经被作者于2009-2-28 17:03:49编辑过] | 
发表于 2009-2-28 16:30
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