Question 1

It is common for a developer to hold back funds to be sure that subcontractors perform all work completely before making final payment.

Accepted Answer

A) True 
 B)False

Question 2

Each parcel of land in a new development is selling for $15,000 and the total project revenue is estimated to be $5,000,000.The project lender has stated that the loan should be paid off when 80% of the total project revenue has been earned.The total loan amount is $3,500,000.What is the release price for each parcel?

Accepted Answer

A)  $8,400
B)  $12,000
C)  $12,750
D)  $13,125E) B) and C)
F) C) and D) D

Question 3

It is proper to include an estimate for developer profit as a cost of development when projecting net cash flows and evaluating whether a required rate of return will be met.

Accepted Answer

A) True 
 B)False

Question 4

By using an option contract,a developer may profit from an appreciation in the property's value over the option period.

Accepted Answer

A) True 
 B)False

Question 5

A lender does not usually require a developer to submit a schedule of estimated cash flows prior to approving a land development loan.

Accepted Answer

A) True 
 B)False

Question 6

Consider the table,which summarizes monthly construction draws and sales revenues.What is the percentage of lot sales revenue that needs to be used to repay the loan?

Accepted Answer

A)  4.0%
B)  75.0%
C)  76.6%
D)  33.3%E) A) and B)
F) A) and C)

Question 7

The release schedule refers to a schedule of expiring leases for existing tenants.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following might impact the density of housing in a land development project?

Accepted Answer

A)  The price paid for the land by the developer
B)  The terrain of the land
C)  The target market's preferences regarding density
D)  All of the aboveE) C) and D)
F) A) and C) D

Question 9

Which of the following does NOT contribute to the complication of estimating the amount of interest carry?

Accepted Answer

A)  The loan is taken down in draws and interest is calculated only as funds are drawn down
B)  Revenue from each type of site varies
C)  The rate of repayment of a loan depends on when the parcels are actually sold
D)  Development loan interest rates are usually fixed while market rates fluctuateE) B) and C)
F) A) and D)

Question 10

Consider the feasibility study shown in the table.What is the return on total cost for the proposed project?

Accepted Answer

A)  15.0%
B)  17.6%
C)  21.4%
D)  150.0%E) C) and D)
F) All of the above

Question 11

When financing land development,the lender generally requires the developer to submit which of the following?

Accepted Answer

A)  A detailed breakdown of project cost
B)  Required zoning changes
C)  Bank references for the general contractor to be used on the project
D)  All of the aboveE) None of the above
F) A) and B)

Question 12

Generally,which of the following is FALSE regarding interest rate risk management techniques?

Accepted Answer

A)  Borrowers can protect themselves from upward movements in interest rates by using interest rate caps
B)  Borrowers can protect themselves from upward movements in interest rates by using interest rate futures contracts
C)  Borrowers can benefit from downward movements in interest rates by using interest rate caps
D)  Borrowers can benefit from downward movements in interest rates by using interest rate futures contractsE) A) and D)
F) B) and D)

Question 13

Which of the following costs should NOT be included in a net present value analysis of a land development project?

Accepted Answer

A)  Land purchase price
B)  Property tax
C)  General overhead such as personnel costs
D)  Developer's profitE) All of the above
F) None of the above

Question 14

A developer must sell all of the lots in a development project and repay the entire development loan before any of the new property owners can receive a clear title.

Accepted Answer

A) True 
 B)False

Question 15

The release price is the dollar amount of a loan that must be repaid when a lot is sold.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is the MOST LIKELY sequence of events in the land development process?

Accepted Answer

A)  Inspect site,perform feasibility analysis,implement marketing program,purchase land and begin construction of improvements
B)  Inspect site,purchase land and begin construction of improvements,perform feasibility analysis,implement marketing program
C)  Inspect site,perform feasibility analysis,purchase land and begin construction of improvements,implement marketing program
D)  Purchase land,perform feasibility analysis,perform preliminary market study,begin construction of improvements,implement marketing programE) All of the above
F) A) and B)

Question 17

Consider the feasibility study shown in the table.You have been advised that sales revenues may be 10 percent lower and/or development costs may be 10 percent higher.Performing a sensitivity analysis,you conclude:

Accepted Answer

A)  A 10 percent decrease in sales revenues would have a bigger impact on returns than a 10 percent increase in development costs
B)  A 10 percent increase in development costs would have a bigger impact on returns than a 10 percent decrease in sales revenues
C)  A 10 percent increase in development costs and a 10 percent decrease in sales revenues would have opposite impacts on returns,canceling each other out and having no impact on returns
D)  Both factors would have such a small impact,that there is no reason to be concerned about either a 10 percent increase in development costs or a 10 percent decrease in sales revenuesE) B) and C)
F) A) and C)

Question 18

A futures instrument,such as a T-bill,can be used to hedge a cash or a spot instrument such as the prime rate,where the two instruments are not perfectly correlated.What type of hedge is this referred to as?

Accepted Answer

A)  A perfect hedge
B)  A straight hedge
C)  A cross hedge
D)  None of the aboveE) A) and B)
F) None of the above C

Question 19

A feasibility study analyzes whether a tract of land can be purchased and developed profitably.

Accepted Answer

A) True 
 B)False

Question 20

Option contracts are used to reserve a parcel of land so that it will not be sold to someone else,while the developer does preliminary analysis of the site.

Accepted Answer

A) True 
 B)False

Exam 17: Financing Land Development Projects

It is common for a developer to hold back funds to be sure that subcontractors perform all work completely before making final payment.

Correct Answer
verified

Correct Answer
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D

It is proper to include an estimate for developer profit as a cost of development when projecting net cash flows and evaluating whether a required rate of return will be met.

Correct Answer
verified

By using an option contract,a developer may profit from an appreciation in the property's value over the option period.

Correct Answer
verified

A lender does not usually require a developer to submit a schedule of estimated cash flows prior to approving a land development loan.

Correct Answer
verified

Consider the table,which summarizes monthly construction draws and sales revenues.What is the percentage of lot sales revenue that needs to be used to repay the loan?

Correct Answer
verified

The release schedule refers to a schedule of expiring leases for existing tenants.

Correct Answer
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Which of the following might impact the density of housing in a land development project?

Correct Answer
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D

Which of the following does NOT contribute to the complication of estimating the amount of interest carry?

Correct Answer
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Consider the feasibility study shown in the table.What is the return on total cost for the proposed project?

Correct Answer
verified

When financing land development,the lender generally requires the developer to submit which of the following?

Correct Answer
verified

Generally,which of the following is FALSE regarding interest rate risk management techniques?

Correct Answer
verified

Which of the following costs should NOT be included in a net present value analysis of a land development project?

Correct Answer
verified

A developer must sell all of the lots in a development project and repay the entire development loan before any of the new property owners can receive a clear title.

Correct Answer
verified

The release price is the dollar amount of a loan that must be repaid when a lot is sold.

Correct Answer
verified

Which of the following is the MOST LIKELY sequence of events in the land development process?

Correct Answer
verified

Consider the feasibility study shown in the table.You have been advised that sales revenues may be 10 percent lower and/or development costs may be 10 percent higher.Performing a sensitivity analysis,you conclude:

Correct Answer
verified

A futures instrument,such as a T-bill,can be used to hedge a cash or a spot instrument such as the prime rate,where the two instruments are not perfectly correlated.What type of hedge is this referred to as?

Correct Answer
verified
C

A feasibility study analyzes whether a tract of land can be purchased and developed profitably.

Correct Answer
verified

Option contracts are used to reserve a parcel of land so that it will not be sold to someone else,while the developer does preliminary analysis of the site.

Correct Answer
verified

Exam 17: Financing Land Development Projects

It is common for a developer to hold back funds to be sure that subcontractors perform all work completely before making final payment.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedD

It is proper to include an estimate for developer profit as a cost of development when projecting net cash flows and evaluating whether a required rate of return will be met.

Correct AnswerverifiedShow Answer

By using an option contract,a developer may profit from an appreciation in the property's value over the option period.

Correct AnswerverifiedShow Answer

A lender does not usually require a developer to submit a schedule of estimated cash flows prior to approving a land development loan.

Correct AnswerverifiedShow Answer

Consider the table,which summarizes monthly construction draws and sales revenues.What is the percentage of lot sales revenue that needs to be used to repay the loan?

Correct AnswerverifiedShow Answer

The release schedule refers to a schedule of expiring leases for existing tenants.

Correct AnswerverifiedShow Answer

Which of the following might impact the density of housing in a land development project?

Correct AnswerverifiedD

Which of the following does NOT contribute to the complication of estimating the amount of interest carry?

Correct AnswerverifiedShow Answer

Consider the feasibility study shown in the table.What is the return on total cost for the proposed project?

Correct AnswerverifiedShow Answer

When financing land development,the lender generally requires the developer to submit which of the following?

Correct AnswerverifiedShow Answer

Generally,which of the following is FALSE regarding interest rate risk management techniques?

Correct AnswerverifiedShow Answer

Which of the following costs should NOT be included in a net present value analysis of a land development project?

Correct AnswerverifiedShow Answer

A developer must sell all of the lots in a development project and repay the entire development loan before any of the new property owners can receive a clear title.

Correct AnswerverifiedShow Answer

The release price is the dollar amount of a loan that must be repaid when a lot is sold.

Correct AnswerverifiedShow Answer

Which of the following is the MOST LIKELY sequence of events in the land development process?

Correct AnswerverifiedShow Answer

Consider the feasibility study shown in the table.You have been advised that sales revenues may be 10 percent lower and/or development costs may be 10 percent higher.Performing a sensitivity analysis,you conclude:

Correct AnswerverifiedShow Answer

A futures instrument,such as a T-bill,can be used to hedge a cash or a spot instrument such as the prime rate,where the two instruments are not perfectly correlated.What type of hedge is this referred to as?

Correct AnswerverifiedC

A feasibility study analyzes whether a tract of land can be purchased and developed profitably.

Correct AnswerverifiedShow Answer

Option contracts are used to reserve a parcel of land so that it will not be sold to someone else,while the developer does preliminary analysis of the site.

Correct AnswerverifiedShow Answer

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D

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D

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C

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