Multiple Choice Quiz 7.4

1) The debt coverage ratio is the relationship between the annual debt service on the property and the: [0529]

A. Effective gross income of the property

* B. Net operating income of the property

C. Cash flow of the property

D. Gross income of the property

2) The ratio of net operating income (NOI) to annual debt service is: [0533]

* A. Debt coverage ratio

B. Operating income ratio

C. Break even ratio

D. Expense ratio

3) What is the 'debt coverage ratio'? [0534]

A. Property value divided by the loan balance

* B. Net operating income divided by the mortgage payment

C. Mortgage payment divided by the before-tax cash flow

D. Net operating income divided by the interest expenses

4) Why are lenders interested in the debt coverage ratio? [0535]

A. It indicates how fast the loan will be repaid

B. It indicates the value of the property

C. It is required by government regulation

* D. It indicates the safety of the loan

5) Most often, the debt coverage ratio is used as a (an): [0536]

A. Investment criterion

B. Appraisal criterion

* C. Underwriting criterion

D. Sales criterion

6) Annual debt service is: [0607]

A. The debt plus the interest annualized

B. Loan principle, interest, taxes, and insurance annualized

* C. The mortgage payment annualized

D. The amount of interest paid on a loan annually

7) What is the net operating income minus debt service? [0417]

A. After-tax cash flow

* B. Pretax cash flow

C. Potential gross income

D. Effective gross income

8) Cash on cash return is the same as: [0546]

* A. Equity dividend rate

B. Discount rate

C. Internal rate of return

D. Yield rate

9) What term describes the use of debt capital to acquire an income-producing asset? [0578]

A. Joint venture

* B. Leverage

C. Liquidation

D. Syndication

10) If the capitalization rate exceeds the mortgage rate: [4042]

A. Leverage is zero

B. The effect on leverage cannot be determined using the information given

* C. Leverage is positive

D. Leverage is negative

11) The ratio of the annual debt service and the original loan amount is the: [0422]

A. Debt coverage ratio

* B. Mortgage constant

C. Equity dividend rate

D. Interest ratio

12) The mortgage loan constant is the ratio of the loan payment to the: [0427]

A. Net operating income

B. Interest rate

C. Loan term

* D. Original loan amount

13) A property was purchased for $500,000 with a 70% loan.  First year before-tax cash flow equals $12,000.  What is the equity dividend rate?  [0495]

A. 2.4%

B. 3.4%

* C. 8.0%

D. 10.0%

14) A loan is made for $100,000. The loan has monthly payments of $908.70.  Interest the first month is $833.33 and principal (amortization) is $75.37. What is the annual mortgage constant?  [0522]

A. 0.10

B. 0.01

* C. 0.11

D. 0.09

15) The annual payment on a loan of $100,000 at 12% interest for 5 years is $27,740.  What is the annual mortgage constant. [0587]

A. 26.57%

B. 12.00%

C. 11.00%

* D. 27.74%

16) If an income property has an annual effective gross income of $64,000 with total expenses of $30,000 and variable expenses of $17,000, what is the operating expense ratio?  [0497]

A. 2.13

B. 0.27

* C. 0.47

D. 0.73

17) An apartment complex, has a potential gross income of $500,000.  Vacancy and bad debt losses are 6%.  If operating expenses are $205,000, what is the operating expense ratio? [0503]

A. The operating expense ratio cannot be determined without knowing the amount of the mortgage payment

* B. 44%

C. 45%

D. 41%