Real Estate Finance & Investments 16th Edition By William B Brueggeman – Test Bank

Chapter 11 Investment Analysis and Taxation of Income Properties

1) Debt coverage ratio measures the degree to which the NOI from the property is expected to exceed the mortgage payment.

Answer: TRUE
Difficulty: 1 Easy
Topic: Debt financing
Accessibility: Keyboard Navigation
Gradable: automatic

2) CPI adjustments shift the risk of unexpected inflation to the lessor.

Answer: FALSE
Difficulty: 1 Easy
Topic: Inflation
Accessibility: Keyboard Navigation
Gradable: automatic

3) Expense stops shift the risk of increases in expenses to the lessee while allowing the lessor to retain the benefit of any decrease in expenses.

Answer: TRUE
Difficulty: 1 Easy
Topic: Projected cash flows
Accessibility: Keyboard Navigation
Gradable: automatic

4) In making an investment decision, IRR analysis will lead to a different “go/no-go” decision than NPV analysis.

Answer: FALSE
Difficulty: 1 Easy
Topic: Investment analysis
Accessibility: Keyboard Navigation
Gradable: automatic

5) The equity dividend rate is an accurate measure of investment yield because it takes into account future cash flows.

Answer: FALSE
Difficulty: 2 Medium
Topic: Projected cash flows
Accessibility: Keyboard Navigation
Gradable: automatic
6) The use of a CPI index in a lease contract shifts risk to the tenant.

Answer: TRUE
Difficulty: 1 Easy
Topic: Inflation
Accessibility: Keyboard Navigation
Gradable: automatic

7) Expense stops protect the lessee from unexpected changes in market rents.

Answer: FALSE
Difficulty: 1 Easy
Topic: Projected cash flows
Accessibility: Keyboard Navigation
Gradable: automatic

8) A gross lease is riskier for the lessor than a net lease.

Answer: TRUE
Difficulty: 2 Medium
Topic: Projected cash flows
Accessibility: Keyboard Navigation
Gradable: automatic

9) The debt coverage ratio is used by lenders to indicate the riskiness of a loan.

Answer: TRUE
Difficulty: 1 Easy
Topic: Debt financing
Accessibility: Keyboard Navigation
Gradable: automatic

10) When calculating IRR, the projected cash flows are discounted such that they will equal the initial investment amount.

Answer: TRUE
Difficulty: 2 Medium
Topic: Investment analysis
Accessibility: Keyboard Navigation
Gradable: automatic