Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Valuation Quizzes > Valuation Investment Method Quiz > Flashcards

Valuation Investment Method Quiz Flashcards

1
Q

When is the investment method used?

A

For income producing property, i.e. an investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a yield?

A

Annual return on investment expressed as % of capital value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is an All Risks Yield (ARY)?

A

Remunerative rate of interest used in the conventional valuation of freehold and leasehold interests, reflecting all the prospects and risks attached to a particular investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is an equivalent yield?

A

Weighted average of initial and reversionary yields

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is a Net Initial Yield (NIY)?

A

Yield based on initial income and adjustment for purchaser’s costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is a true yield?

A

Calculated quarterly in advance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is an equated yield?

A

Discount rate which needs to be applied to the flow of income expected during the life of the investment do that the total amount of income so discounted at this rate equals the capital outlay

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Which of these are traditional valuation methods?
(3 marks)

  1. Term and reversion
  2. DCF
  3. Hardcore and topslice
A
  1. Term and reversion

2. Hardcore and topslice

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Do these methods use growth implicit, explicit or both yields?

A

Implicit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What do you typically use a term and reversion for?

A

Under rented investments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What do you typically use a hardcore and topslice for?

A

Over-rented investments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is a reversionary freehold?

A

An investment where the rent passing is below open market rental value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the key issues when using a hardcore and topslice valuation for an over-rented investment?
(5 marks)

  1. Growth explicit so too many assumptions made
  2. Arbitrary division of income
  3. Double counting
  4. Subjective adjustments
  5. Topslice is highly geared
  6. Hard to build in complex circumstances or voids
A
  1. Arbitrary division of income
  2. Double counting
  3. Subjective adjustments
  4. Topslice is highly geared
  5. Hard to build in complex circumstances or voids
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How could you value a leasehold property?
(3 marks)

  1. Dual rate (with a sinking fund)
  2. DCF
  3. Single rate
  4. Dual rate (with a separate rate for the sub-lease element)
  5. You can only value a premium for leaseholds
A
  1. Dual rate (with a sinking fund)
  2. DCF
  3. Single rate
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

When might you chose to use a DCF? (5 marks)

A
  1. Complex investment
  2. Financial modelling
  3. Lack of comparable evidence
  4. Adapt to individual investment requirements
  5. Assess investment value to assist in buy/sell decision/selection between alternative investments
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is Net Present Value (a type of DCF analysis)?

A

Present value of all future expected income and capital flows, discounted at the investor’s target or required rate of return

17
Q

What is Internal Rate of Return (IRR) (a type of DCF analysis)?

A

Discount rate which, when applied to all future expected income and capital flows, equates the price with the present value of these discounted income flows (i.e. NPV = 0)

18
Q

Is a DCF growth explicit or implicit?

A

Explicit

19
Q

What does a positive NPV indicate?

A

Rate of return higher than the discount rate is being yielded

20
Q

What are the problems with a DCF? (4 marks)

  1. Subjective
  2. Can’t use it for over rented investments
  3. A lot of assumptions are made
  4. Potential for double counting (e.g. building break option into cash flow and discount rate)
  5. Not necessarily based on comparable evidence
  6. Rental growth built into the yield choice
A
  1. Subjective
  2. A lot of assumptions are made
  3. Potential for double counting (e.g. building break option into cash flow and discount rate)
  4. Not necessarily based on comparable evidence
21
Q

How do you calculate exit value in a DCF?

A

Apply a YP in perp (NIY) rather than an equated yield

22
Q

How could you choose a discount rate for a DCF?
(2 marks)

  1. Risk free rate + risk premium (market and specific property risk)
  2. Risk free rate + 1%
  3. Investor’s target discount rate
  4. NIY plus rental growth from an alternative investment
A
  1. Risk free rate + risk premium (market and specific property risk)
  2. Investor’s target discount rate
23
Q

Which of these are correct in relation to a risk premium? (2 marks)

  1. Market risk (systematic) - illiquidity upon sale, failure to meet forecast rental growth and yield shift, risk of obsolescence through structural change, legislative risk
  2. Specific property risk - (unsystematic) covenant risk, void risk, cost of ownership and management, I ensure structures
  3. Market risk (unsystematic) - covenant risk, void risk, cost of ownership and management, I ensure structures
  4. Specific property risk (systematic) - illiquidity upon sale, failure to meet forecast rental growth and yield shift, risk of obsolescence through structural change, legislative risk
A
  1. Market risk (systematic) - illiquidity upon sale, failure to meet forecast rental growth and yield shift, risk of obsolescence through structural change, legislative risk
  2. Specific property risk - (unsystematic) covenant risk, void risk, cost of ownership and management, I ensure structures
24
Q

What is the risk free rate generally based on?

A

Gross redemption yield on a medium-dated government gilt

25
Q

How can you produce a DCF? (3 marks)

A
  1. By hand
  2. Spreadsheet
  3. Software, e.g. Argus

Valuation Quizzes (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions