CGA Financial Analysis & Reporting 3

Question 1

A property generates an annual NOI of $150,000 and similar properties sell at a 6.5% cap rate. What is the indicated value using direct capitalization?

Accepted Answer

$2,307,692

Answer

Value = NOI ÷ Cap Rate = $150,000 ÷ 0.065 = $2,307,692.

Question 2

Which condition would cause an appraiser to prefer discounted cash flow (DCF) analysis over direct capitalization?

Accepted Answer

The property has significant lease expirations and variable near-term cash flows

Answer

DCF is preferred when income streams are irregular or changing, capturing the timing of cash flows that direct capitalization cannot reflect.

Question 3

In a DCF analysis, the terminal value (reversion) is typically estimated by:

Accepted Answer

Capitalizing the projected NOI in the year after the holding period

Answer

The terminal value is found by capitalizing the NOI expected in the year following the holding period using a terminal (going-out) cap rate.

Question 4

An appraiser increases the discount rate used in a DCF model. Holding all else constant, what happens to the estimated property value?

Accepted Answer

Value decreases because future cash flows are discounted more heavily

Answer

A higher discount rate reduces the present value of each future cash flow, resulting in a lower overall property value.

Question 5

Which metric represents the total pre-tax return on equity over a holding period, expressed as a percentage of initial equity invested?

Accepted Answer

Equity Yield Rate (IRR on equity)

Answer

The equity yield rate (equity IRR) measures the annualized return on equity considering all cash flows and the reversion proceeds net of debt payoff.

(CGA) Certified General Appraiser Practice Test

(CGA) Certified General Appraiser Practice Test

CGA Financial Analysis & Reporting 3