ASA Income Approach to Value 2

Question 1

Which term describes the rate used to convert future income or cash flows into present value in a DCF analysis?

Accepted Answer

Discount rate

Answer

The discount rate reflects the time value of money and investor risk, converting future cash flows to a present value.

Question 2

Potential gross income (PGI) assumes a property is:

Accepted Answer

100% occupied at market rents

Answer

PGI represents the maximum income a property could generate if fully occupied at current market rental rates.

Question 3

Which expense is NOT typically deducted from income when calculating NOI in real property appraisal?

Accepted Answer

Mortgage debt service

Answer

Debt service is a financing cost, not an operating expense, and is excluded from the NOI calculation.

Question 4

The equity residual technique in income capitalization applies the capitalization rate to which portion of income?

Accepted Answer

Income remaining after debt service

Answer

The equity residual technique capitalizes income remaining after satisfying the mortgage to estimate the value of the equity interest.

Question 5

A gross rent multiplier (GRM) is calculated by dividing:

Accepted Answer

Sale price by gross rental income

Answer

GRM = Sale Price ÷ Gross Rental Income, and is used as a quick valuation tool for small income properties.

ASA - American Society of Appraisers Certification Practice Test