In a discounted cash flow analysis, the reversion is:
Correct Answer
A) The anticipated proceeds from selling the property at the period's end
Why this is correct: In a Discounted Cash Flow (DCF) analysis, the reversion (or terminal value) is the anticipated net sale proceeds from disposing of the property at the end of the forecast period. It is a critical component, often representing a large portion of the total present value. Why the other choices are wrong: The refund of a security deposit is a specific lease item, not the reversion. The annual return of depreciation is an accounting concept, not a cash flow. The first year's stabilized income is the starting point for the DCF, not the terminal event. Exam tip: The reversion is a future sale event. Its calculation (often using a terminal cap rate) is highly sensitive and a common point of review.
Why This Is the Correct Answer
Why this is correct: In a Discounted Cash Flow (DCF) analysis, the reversion (or terminal value) is the anticipated net sale proceeds from disposing of the property at the end of the forecast period. It is a critical component, often representing a large portion of the total present value. Why the other choices are wrong: The refund of a security deposit is a specific lease item, not the reversion. The annual return of depreciation is an accounting concept, not a cash flow. The first year's stabilized income is the starting point for the DCF, not the terminal event. Exam tip: The reversion is a future sale event. Its calculation (often using a terminal cap rate) is highly sensitive and a common point of review.
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Effective gross income for a property with $95,000 PGI, 7% vacancy and $3,400 other income is:
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An appraiser is estimating the market rent for a warehouse property. Comparable leases show net rents, and the subject's operating expense ratio is 35%. To develop a potential gross income estimate on a gross basis (for a gross income multiplier analysis), the appraiser should: