ARA ARA Appraisal Finance & Investment Analysis 2

Question 1

A rural property generates $54,000 in annual net operating income. If the market cap rate is 6%, what is the indicated value?

Accepted Answer

$900,000

Answer

$54,000 ÷ 0.06 = $900,000; the cap rate divides into NOI to produce value.

Question 2

The gross rent multiplier (GRM) is used to estimate value by:

Accepted Answer

Multiplying gross scheduled income by a market-derived factor from comparable sales

Answer

GRM is a quick income-based method that multiplies gross rental income by a factor extracted from comparable sales in the same market.

Question 3

Which statement best describes 'going-concern' value in rural appraisal?

Accepted Answer

The value of an operating agricultural enterprise including real property, personal property, and business value

Answer

Going-concern value captures the total worth of an operating farm, requiring the appraiser to separately identify and allocate real versus personal property and intangible components.

Question 4

The discount rate in a discounted cash flow (DCF) analysis reflects:

Accepted Answer

The investor's required total rate of return over the projected holding period

Answer

The discount rate incorporates risk and time preferences, representing what an investor demands to justify the investment given its risks.

Question 5

What does the 'equity capitalization rate' (equity dividend rate) measure?

Accepted Answer

Annual cash return on the equity portion of the investment after debt service

Answer

The equity dividend rate equals before-tax cash flow divided by equity investment, measuring the cash yield on the owner's contributed capital.

(ARA) Accredited Rural Appraiser Practice Test

(ARA) Accredited Rural Appraiser Practice Test

ARA ARA Appraisal Finance & Investment Analysis 2