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Questions and Answers
What does the break-even ratio indicate?
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?
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?
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?
Which statement correctly describes the payback period?
What does a break-even ratio relate to?
What does a break-even ratio relate to?
Which of the following statements about the equity dividend rate is incorrect?
Which of the following statements about the equity dividend rate is incorrect?
What is implied by the overall capitalization rate?
What is implied by the overall capitalization rate?
What is a major problem with the broker's rate of return?
What is a major problem with the broker's rate of return?
What is the primary use of income multipliers?
What is the primary use of income multipliers?
Which of the following statements is true regarding the equity dividend rate?
Which of the following statements is true regarding the equity dividend rate?
What does the operating ratio highlight?
What does the operating ratio highlight?
Which statement accurately describes gross income multipliers?
Which statement accurately describes gross income multipliers?
Which of the following best describes the impact of income taxes on the value of an investment?
Which of the following best describes the impact of income taxes on the value of an investment?
Which evaluation tool might be inadequate as a sole indication of investment worth?
Which evaluation tool might be inadequate as a sole indication of investment worth?
Flashcards
Problem with Broker's Rate of Return
Problem with Broker's Rate of Return
The broker's rate of return does not consider the effect of income taxes on the investment value. It only focuses on the initial cash flow.
What are income multipliers?
What are income multipliers?
Income multipliers are a simplified way to quickly assess the potential profitability of a property by comparing its price or value to its cash flow.
What is the equity dividend rate?
What is the equity dividend rate?
The equity dividend rate is not affected by financing structures. It primarily focuses on the return earned by the equity investor in the property.
What is the operating ratio?
What is the operating ratio?
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What is the overall capitalization rate?
What is the overall capitalization rate?
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What are gross income multipliers?
What are gross income multipliers?
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What does the break-even ratio tell us?
What does the break-even ratio tell us?
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How is net operating income calculated?
How is net operating income calculated?
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What is the break-even ratio?
What is the break-even ratio?
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What is the payback period?
What is the payback period?
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What is the net income multiplier?
What is the net income multiplier?
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What is the break-even ratio?
What is the break-even ratio?
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How are capitalization rates and net income multipliers related?
How are capitalization rates and net income multipliers related?
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Study Notes
Investment Analysis Ratios
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Broker's Rate of Return: Ignores cash flows after the initial year and financing arrangements, as well as income tax effects.
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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.
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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.
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Operating Ratio: Shows operating expenses as a percentage of effective gross income, highlighting the relationship between net operating income and operating expenses.
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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.
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Gross Income Multiplier: Reflects the relationship between a property's price to its gross income. Its reciprocal is the capitalization rate.
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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.
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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!
