A Property Produces a First-Year Net Operating Income of $24,000

question 13

Multiple Choice

A property produces a first-year net operating income of $24,000.Because of the long economic life of the building,the income is considered as a perpetuity that will grow by 2.5% per year.Using a discount rate of 9.5%,the property value is estimated at:

• A)$276,968
• B)$252,632
• C)$200,000
• D)$342,857

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Definitions:

Voting Shares

Shares that grant the shareholder the right to vote on matters of corporate policy and the election of the board of directors.

Equity Method

An accounting technique used when a company holds a significant influence over another (associate) company, usually through ownership of 20% to 50% of the voting stock, involving adjusting the value of the investment based on the investee's performance.

Acquisition Differential

The difference between the purchase price of an acquired company and the fair value of its net identifiable assets.

Common Shares

Equity securities that represent ownership in a corporation, entitling holders to a share of the corporation's profits through dividends and/or capital appreciation.