SAEE SAEE Income Approach and Capitalization 4

Question 1

An appraiser is valuing a small retail strip center with an NOI of $180,000 and a market cap rate of 7.5%. What is the indicated value?

Accepted Answer

$2,400,000

Answer

$180,000 / 0.075 = $2,400,000.

Question 2

Which of the following expenses is typically EXCLUDED from the calculation of Net Operating Income?

Accepted Answer

Mortgage debt service

Answer

Debt service (mortgage payments) is a financing cost excluded from NOI, which reflects operating performance only.

Question 3

A property has a potential gross income of $200,000, a vacancy and collection loss of 5%, and operating expenses of $70,000. What is the NOI?

Accepted Answer

$120,000

Answer

EGI = $200,000 × 0.95 = $190,000; NOI = $190,000 − $70,000 = $120,000.

Question 4

The equity dividend rate (cash-on-cash return) measures the relationship between:

Accepted Answer

Pre-tax cash flow and equity investment

Answer

The equity dividend rate equals before-tax cash flow divided by the equity investment.

Question 5

In the band-of-investment method, the overall capitalization rate is derived from:

Accepted Answer

Weighted contributions of mortgage and equity components

Answer

Band of investment weights the mortgage constant by the loan-to-value ratio and the equity dividend rate by the equity ratio.

SAEE Test Practice Test