Final Exam Review - University of Kentucky期末考试复习-肯塔基大学.pptVIP

Final Exam Review Thursday, May 4 1:00pm – 3:00pm Valuation Approaches Cost Approach Income Approach V = I/R, I=stabilized NOI, R=cap rate Relationship between cap rate and discount rates. Incorporates real estate specific risk Market Approach Hedonics Overall: Weaker methods of valuations; know the approaches, pros/cons of each, when you would use them. Cash Flow Valuation Operations: Gross potential income- Vacancy/bad debt= Effective gross income- Operating expenses= Net Operating Income- Debt Service- Capital Improvements = Before Tax Cash Flow Net Operating Income- Interest- Depreciation (Residential=27.5 yrs/Commercial = 39)= Taxable Income?Before Tax Cash Flow- Tax Bill= After-Tax Cash Flow At Sale: Gross Sale Price- Sale expenses= Net Sales Price- Mortgage Balance= Before Tax Cash at Sale- Tax Bill at Sale= After Tax Cash Flow at Sale Net Sales Price- Book Value ((Cost+Cap Improve) – Accumulated Depreciation)= Capital Gain* Capital Gain Tax Rate= Tax Bill at Sale Overall: Know how to do cash flows. Period. Remember how to incorporate capital improvements into the cash flows as well. Mortgage Mechanics Write down basic TVM equations on your cheat sheet. To receive partial credit, you must prove that you understand the basics – i.e. use the correct equation and indicate that you know what to solve for. Loan Amortization: know how to find the remaining balance on a mortgage at any point. Loan Amortization: know how to divide the mortgage payment into principal and interest Overall: Know how to manipulate the equations, solve for effective interest rates, IRRs, etc. Cash Flow Pro formas Where does value in deal come from? When? Timing matters for NPV. Are assumptions realistic? Expense growth? Increase at an increasing rate. Are you budgeting enough capital reserves? Are you taking market conditions into account? Make less money when leases rollover in market downturns. Watch out for unrealistic sale price assumptions.