In Translating Construction Cost Cash Flows Across Time to Arrive

question 14

Multiple Choice

In translating construction cost cash flows across time to arrive at the present certainty-equivalent value of the construction cost as of time zero, the opportunity cost of capital OCC) that should be used as the discount rate is best described as follows:

• A) Use the contract interest rate on the construction loan.
• B) Use a rate equal to or only slightly above the riskfree interest rate.
• C) Use the development phase OCC reflecting the leverage in the construction project.
• D) Use the yield on long-term Government bonds.

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Definitions:

Adjusted Basis

The net cost of an asset after adjusting for various tax-related items including improvements, sales, depreciation, and damage.

Assumes Liability

The act of taking on legal responsibility or debt from another party, often occurring in business acquisitions or financial agreements.

Amount Realized

The total sum received from a transaction, including money and the fair market value of any property or services received, before subtracting any costs.

Holding Period

The duration of time an investor holds onto an asset or investment before selling it.