You Are Trying to Apply a Multi-Year DCF Analysis to Evaluate

question 23

Multiple Choice

You are trying to apply a multi-year DCF analysis to evaluate an investment property with some long-term leases in it. You observe that other properties with similar lease structure and risk have been selling at cap rates around 11% (based on NOI with no capital reserve) . You believe these other properties typically face capital expenditures on the order of 1% of property value per year in the long run, and that given such expenditures their net cash flows and values would reasonably be expected to grow in the long run at about 3% per year. What discount rate should you apply to your subject property in your DCF valuation?

• A) The Treasury bond rate because of the long-term leases.
• B) 10%
• C) 13%= 11%-1%)+3% = y + g = r.
• D) 14%

Understand the principles and methods of recognizing revenue under the installment sales method.

Calculate and interpret realized gross profit on installment sales.

Record accounting entries related to installment sales, including deferral and realization of gross profit.

Distinguish between different revenue recognition methods and their applicability under various circumstances including installment sales, consignments, and service revenue.

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Definitions:

Specialization in Production

The process by which individuals, businesses, or countries focus on producing a limited scope of goods or services to gain greater efficiency and quality.

Coincidence of Wants

A situation in a barter economy where two parties each hold an item the other wants, facilitating a direct trade without the need for a medium of exchange.

Barter Economy

An economic system where goods and services are exchanged directly for other goods and services without using money as an intermediate.

Medium of Exchange

An instrument used to facilitate the sale, purchase, or trade of goods between parties, for example, money or digital currency.