Most Appraisers Adhere to an "Above-Line" Treatment of Capital Expenditures

question 14

Multiple Choice

Most appraisers adhere to an "above-line" treatment of capital expenditures. This implies which of the following?

• A) Capital expenditures are subtracted in the calculation of net operating income.
• B) Capital expenditures are subtracted from net operating income to obtain a net cash flow measure.
• C) Capital expenditures are added to net operating income.
• D) Capital expenditures are excluded from all calculations because they are difficult to estimate.

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Definitions:

Price Effect

The impact on consumer demand and producer behavior due to a change in the price of a good or service, holding other factors constant.

Quantity Effect

The impact on total revenue when the quantity sold changes while holding price constant.

Total Revenue

The total amount of money generated from the sale of goods or services before any costs or expenses are deducted.

Price Elasticity

The extent to which the amount of a good that is sought after moves due to a difference in price.