Chapter 8 & 9

David Mueller-Flores
Fin 180- M W @ 2

Chapter 8 – Entrepreneurial Activity

The process of real estate development has six steps which are conceive a project, examine project feasibility, refine the concept, design the project, construct the design, and finally manage the asset. True or False? True pg. 201

Every project begins as sites in search of a use concept. True or False? False Pg. 203

In the case of a site in search of a use the idea is to figure out which of the candidate uses will provide the highest and best use. True or False? True Pg. 203

The two things that developer needs to make sure of when examining the feasibility of a project are that the market will support the project’s vision and that the site itself is suitable, both physically and legally, to accommodate it. True or False? True Pg. 204

Obtaining information that sheds light on the legal and physical suitability of the site for the project concept is termed conducting due diligence. True or False? True Pg. 206

At which point in the process of real estate development does a developer reach the “point of no return”?
A) Examine the project feasibility
B) Refine the concept
C) Design the project
D) Construct the design
Answer is C “design the project” Pg. 201

What is the final step in the process of real estate development?
A) Manage the Asset
B) Construct the Design
C) Refine the Concept
D) Conceive a project
Answer is A “Manage the Asset” pg. 201

The two sets of activities that developers place operations during a project are?
A) Entrepreneurial, Investing
B) Entrepreneurial, Government
C) Precommitment, Postcommitment
D) None of the Above
Answer is C “Precommitment, Postcommitment” Pg. 200 &201

Chapter 9 – Investing Activity

Opportunity cost is the value of the next-best investment choice. True or False? True Pg. 232

It is impossible for property to have negative cash flow. True or False? False Pg. 235

The analysis of every potential risk leads to overanalysis and analysis paralysis. True or False True Pg. 234

A reserve account is used to account for the period replacement of improvement’s short lived components, such as a roof. True or False? True Pg.236

In an investment problem, ATCF represents the bottom line and money in the investor’s pocket. True or False? True Pg. 253

The Cap. Rate is which ratio?
A) NOI/Vo
B) NOI/Ro
C) Total Operating Expenses/EGI
D) EGI/Vo
Answer is A “NOI/Vo” Pg. 269

Out of the choices below which is the best DSCR ratio?
A) 1
B) 1.3
C) .7
D) .1
Answer is B “1.3” pg. 268 & 269

A risk or risks of investing in real estate include:
A) Opportunity Cost
B) Inflation
C) Mortgage Reduction
D) A & B only
E) All of the Above
The answer is D “ A & B only” Pg. 231 & 234