ASA Income Approach to Value

Question 1

Which capitalization method converts a single year's income into a value estimate by dividing by a rate?

Accepted Answer

Direct capitalization

Answer

Discounted cash flow

Answer

Gross income multiplier

Answer

Band of investment

Question 2

In the income approach, what does NOI stand for?

Accepted Answer

Net Operating Income

Answer

Nominal Outstanding Interest

Answer

Net Ownership Index

Answer

Normal Operating Index

Question 3

Which of the following is subtracted from potential gross income to arrive at effective gross income?

Accepted Answer

Vacancy and collection loss

Answer

Depreciation

Answer

Debt service

Answer

Capital expenditures

Question 4

A property generates NOI of $120,000 and the overall capitalization rate is 6%. What is the indicated value?

Accepted Answer

$2,000,000

Answer

$1,500,000

Answer

$720,000

Answer

$2,500,000

Question 5

In a discounted cash flow (DCF) analysis, the terminal value is typically estimated using which technique?

Accepted Answer

Applying a terminal cap rate to the final year's projected NOI

Answer

Summing all undiscounted future cash flows

Answer

Multiplying gross rent by an income multiplier

Answer

Using the cost approach for the reversion

Question 6

The band-of-investment technique is used to derive which rate in the income approach?

Accepted Answer

Overall capitalization rate

Answer

Discount rate

Answer

Equity yield rate

Answer

Terminal capitalization rate