Which assignment most calls for discounted cash flow over direct capitalization?
Correct Answer
D) A half-vacant center being repositioned over three years
Why this is correct: Discounted cash flow (DCF) is needed when future income is expected to change significantly, as with 'a half-vacant center being repositioned over three years' where lease-up and rent increases are projected. Why the other choices are wrong: 'A stabilized fourplex with long-term tenants' has stable income, suited for direct cap. 'A single-tenant building on a flat twenty-year lease' has fixed income, also suitable for direct cap. 'A leased-up office at market rents throughout' implies stable income, favoring direct cap. Exam tip: Use DCF for non-stable income streams; use direct cap for stable, representative income.
Why This Is the Correct Answer
Why this is correct: Discounted cash flow (DCF) is needed when future income is expected to change significantly, as with 'a half-vacant center being repositioned over three years' where lease-up and rent increases are projected. Why the other choices are wrong: 'A stabilized fourplex with long-term tenants' has stable income, suited for direct cap. 'A single-tenant building on a flat twenty-year lease' has fixed income, also suitable for direct cap. 'A leased-up office at market rents throughout' implies stable income, favoring direct cap. Exam tip: Use DCF for non-stable income streams; use direct cap for stable, representative income.
More Income Approach Questions
In a percentage lease, rent is commonly structured as:
In a DCF, what is the reversion?
Potential gross income differs from effective gross income in that PGI assumes:
The reversion in a discounted cash flow model represents:
Building A (new, credit tenant, 20-year lease) and Building B (older, month-to-month tenants) sell the same week. Their cap rates should differ how?
An overall rate extracted from a sale whose NOI excluded reserves, applied to a subject NOI that includes them, will:
Replacement reserves cover which kind of expenditure?
What is the primary distinction, for appraisal purposes, between 'vacancy loss' and 'collection loss'?
An appraiser is analyzing a mixed-use property with retail and office components. The retail segment has a potential gross income of $180,000 with a market vacancy of 8%. The office segment has a potential gross income of $120,000 with a market vacancy of 12%. What is the overall effective gross income for the property?
The mortgage constant represents:
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Previous Question
A certified general appraiser is estimating an overall capitalization rate for a newly constructed, triple-net leased industrial warehouse. The tenant has a BBB+ credit rating, the lease expires in 12 years, and market vacancy is 4%. The appraiser extracts a 6.5% cap rate from three recent sales of similar properties but adjusts it downward by 0.75 percentage points to reflect the subject's longer lease term and stronger tenant credit relative to the comparables. Which USPAP standard or advisory opinion most directly governs the defensibility of this adjustment?
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Utilities paid by tenants rather than the landlord affect the analysis by: