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%

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Definitions:

Heart Rate

The number of times a heart beats per minute, reflecting the cardiac activity of an organism.

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The narrowing of the bronchi in the lungs due to the tightening of the surrounding smooth muscle, leading to breathing difficulties.

Pulmonary Emphysema

Pulmonary emphysema is a chronic respiratory disease characterized by the destruction of the air sacs in the lungs, leading to breathlessness.

Chronic Obstructive Pulmonary Disease

A group of lung diseases that block airflow and make it difficult to breathe, typically progressing over time.