Exam 14: Income Capitalization: Rates and Techniques

A discount factor is used to adjust for the time value of money.

Positive leverage results from an equity investment in a property that is earning a greater return than the cost of the loan money.

Income capitalization converts income to its value equivalent.

Direct capitalization is usually the most reliable technique of income capitalization.

The equity residual technique analyzes the cash flow, rather than the net operating income from an investment.

When the net income is divided by the sales price to derive a capitalization rate, the band of investment method is being used.

The overall capitalization rate theoretically allows for a return on the investment, without any recapture.

Reversionary returns from an investment do not include equity build-up from loan pay-off.

In appraisal, the interest rate means the same thing as yield rate.

The future worth of one factor is used to calculate how much income is necessary to justify a given value.