Investment Analysis Ratios Quiz

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Questions and Answers

What does the break-even ratio indicate?

The percentage of income tax in property management

The value of a property in relation to its market price

The relationship between net operating income and operating expenses (correct)

The ratio of gross income to net operating income

What is the equity dividend rate used to express?

Gross income in relation to operational expenses

Net operating income as a percent of total revenue

Before-tax cash flow as a percent of the required equity cash outlay (correct)

The total value of a property as a percentage of its earnings

What is true about the overall capitalization rate?

It is the reciprocal of the net income multiplier (correct)

It is equal to the net income multiplier

It is the ratio of net income to gross income

It describes the total debt coverage ratio

Which statement correctly describes the payback period?

It only considers cash flows until the project is fully paid Signup and view all the answers

What does a break-even ratio relate to?

Net operating income and operating expenses Signup and view all the answers

Which of the following statements about the equity dividend rate is incorrect?

It factors in the property's depreciation Signup and view all the answers

What is implied by the overall capitalization rate?

It is influenced by favorable financial leverage Signup and view all the answers

What is a major problem with the broker's rate of return?

It does not consider the effect of income taxes on the value of an investment. Signup and view all the answers

What is the primary use of income multipliers?

As a preliminary analysis tool to identify unacceptable investment opportunities. Signup and view all the answers

Which of the following statements is true regarding the equity dividend rate?

It does not consider the effect of income taxes on value. Signup and view all the answers

What does the operating ratio highlight?

The percentage of gross income consumed by operating expenses. Signup and view all the answers

Which statement accurately describes gross income multipliers?

They are reciprocal to net income multipliers. Signup and view all the answers

Which of the following best describes the impact of income taxes on the value of an investment?

Income taxes significantly influence the perceived value of an investment. Signup and view all the answers

Which evaluation tool might be inadequate as a sole indication of investment worth?

Income multipliers as preliminary analysis tools. Signup and view all the answers

Study Notes

Investment Analysis Ratios

Broker's Rate of Return: Ignores cash flows after the initial year and financing arrangements, as well as income tax effects.
Income Multipliers: Useful for preliminary analysis to eliminate clearly poor investment opportunities; do not fully indicate investment worth. Relate property price to after-tax cash flow.
Equity Dividend Rate: Ignores financing structures and income tax effects. Reflects before-tax cash flow as a percentage of equity cash outlay, not the property's value.
Operating Ratio: Shows operating expenses as a percentage of effective gross income, highlighting the relationship between net operating income and operating expenses.
Overall Capitalization Rate: Expresses net operating income as a percentage of the property's value or price. Not the same as equity dividend rate; it's the reciprocal of the net income multiplier.
Gross Income Multiplier: Reflects the relationship between a property's price to its gross income. Its reciprocal is the capitalization rate.
Break-Even Ratio: Also known as the "default ratio," it shows the relationship between net operating income and operating expenses, and the extent net operating income can decline before being insufficient for debt service obligations.
Payback Period: A simple project acceptability measure that is easily adapted to different risk preferences by investors. It disregards cashflows after the payback period.

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Description

Test your knowledge on various investment analysis ratios including Broker's Rate of Return, Income Multipliers, and Operating Ratios. This quiz will help you understand the key metrics used to evaluate investment properties and their financial performance. Dive in to assess your understanding of these important ratios!