The Key to Meaningful Valuations in Real Estate Is to Use

question 27

Multiple Choice

The key to meaningful valuations in real estate is to use defensible cash flow estimates. All of the following statements are true in regards to generating accurate cash flow estimates EXCEPT:

• A) Investors should include only those sources of income and expenses that relate directly to the income producing ability of the property.
• B) Investors should only consider recent events, rather than long-term trends when evaluating revenue and expense items.
• C) Investors should obtain information about comparable properties whenever possible.
• D) Investors should take into consideration local zoning, land use, and environmental controls that may impact the future flow of funds.

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Definitions:

Unit Product Cost

The cost assigned to a single unit of product, combining direct materials, direct labor, and manufacturing overhead expenses.

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate manufacturing overhead costs to individual products based on a common activity base.

Markup

The amount added to the cost price of goods to cover overhead and profit.

Manufacturing Cost

The total expense incurred in the process of producing goods, including materials, labor, and overhead.