Real Estate Appraisal II Examination questions for Second Semester 2018 / 2019 Session
- Code: EST 425
- Course: Real Estate Appraisal II
- Time Allowed: 2 ½ hrs
- Instruction: Answer question 1 and any other 4 of your choice
1. An investors plans to buy a piece of development land for N1,400,000. A year following the purchase of the land, he plans to let out a portion of the land for two years to an industrial concern for the storage of its spare parts at N100,000 per annum. In the second year following the purchase of the land, he intends to develop an industrial building at a cost of N4,000,000. By the third year, he would install the equipment at an all inclusive cost of N1,800,000. An annex building would be added during the fifth year at a cost of N520,000. Beginning from the third year, the venture is expected to provide a net yearly revenue of N2,200,000 and by the sixth year, the revenue would increase to N2,450,000 per annum. This return is expected to continue for the following three years.
Market analysis indicates that similar investments in the neigbouhood have an average return of 15%.
Using the external rate of return, advice the investor on the viability of the venture (6 marks)
b. From the above information (1a), determine the internal rate of return given that the discounted rate are 15% and 24% respectively. (16 marks)
2. Define the term “Line of Balance” (2 marks)
b. Explain critically the purpose of the L.O.B method (2 marks)
c. Stat 4 advantages of L.O.B (8 marks)
3. A. project is having a cash outflows of N30,000 with annual cash inflows of N6,000. Calculate the discounted payback period, assume the company discounted rate is 15% and the life of the project is 10 years. (6 marks)
b. Year Annual Cash inflow
1 80,000
2 60,000
3 60,000
4. 20,000
With the above information, calculate cumulative cash inflows and indicate the payback period. ( 6 marks)
4a. Write short note on profitability index (4 marks)
b. state four (4) advantages of payback and four disadvantages of pay back (8 marks)
5a. Company C is planning to undertake a project requiring initial investment of N105 Million. The project is expected to generate N2.5 Million per year is net cash flows for 7 years.
Calculate the payback period of the project using Even cash flow method (4 marks)
b. A project cost N2 million and yield profit of N30,000 after depreciation of 10% but before tax of 30%. Determine payback period if the project using straight line method (8 marks)
6a. Your company has N100 million available for investment in the following potential investment opportunities.
Project NPV Initial Investment
A 15 Million 50 Million
B 10 Million 50 Million
C 10 Million 10 Million
D 20 Million 60 Million
E 12 Million 35 Million
Rank the project based on profitability index and identify the projects that should be accepted keeping in view the company’s capital budget constraints. (6marks)
b. Statistical analysis can be broken down into various stages. Explain any three(3) stages of your choice. (6 marks)
7. Write briefly on the following
i. Statistical Analysis
ii. Beta distribution
iii. Work breakdown structure (WBS)
iv. Linear scheduling method
v. Activity diagrams
vi. Critical path method (CPM) (12 marks)
