1. The initial tax basis may include: a. legal fees. b. commissions. c. second mortgage note signed by purchaser. d. all of the above. 2. Consideration is: a. only the cash paid directly to the seller by the buyer. b. the difference between the selling price and the adjusted basis. c. all items of value given to the seller in exchange for the property. d. none of the above. 3. The adjusted basis is: a. purchase price minus all expenses incurred during the holding period. b. purchase price less recovery allowances. c. purchase price adjusted for capital improvements and cost recovery allowances. d. purchase price minus all expenses, plus all income received during the holding period. 4. The major attractions of co tenancy are: a. its pride of personal ownership and freedom from personal income tax liability. b. its ease of legal arrangements, and its status as a non taxpaying entity. c. its limited liability and its ease of management. d. none of the above. 5. A major drawback of a corporation (other than a Subchapter-S, or Tax Option corporation) is: a. corporations are not tax conduits. b. shareholders have limited liability. c. shareholders participate in management decisions. d. none of the above. 6. Limited partnership arrangements alleviate which traditional problem associated with real estate investments? a. High initial investment required b. Low disaster threshold c. Need for the specialized knowledge of the market d. All of the above 7. Potential disadvantages of the limited partnership include: a. losses for all limited partners, without exception, are treated as passive in nature. b. losses in excess of $25,000 in any one taxable year are treated as passive in nature. c. losses are treated as passive in nature, if the partner's gross income exceeds $125,000. d. losses are treated as passive, as the partner's gross income moves from $100,000 to $125,000. 8. Limited partnership arrangements alleviate which traditional problem associated with real estate investments? a. Low tolerance for risk b. High initial investment required c. Need for portfolio liquidity d. High taxes on salary and business income 9. Which is a key difference between tenancy in common and joint tenancy? a. Tenancy in common carries right of survivorship. b. Joint tenancy interests must be equal and undivided. c. Tenancy in common interests must be equal but need not be undivided. d. Joint tenancy interests are taxed as an association. 10. The excess accumulated earnings tax may be levied on: a. tenancy in common real estate holders. b. general partnerships. c. corporations. d. conduits. 11. In the absence of express agreement to the contrary, partners in a general partnership: a. share profits and losses equally. b. share profits and losses in proportion to their equity investment. c. are liable for partnership obligations only to the extent of their investment in the partnership. d. share liability for partnership obligations in the same ratio that they share profits and losses. 12. The allocation of the initial tax basis may be done by: a. using the allocation estimated by the tax assessor. b. writing the allocation into the contract. c. using the allocation estimated by an independent appraiser. d. all of the above. 13. Depreciation allowances affect: a. income tax consequences. b. net operating income. c. before-tax cash flow. d. all of the above. 14. Prepaid mortgage interest on loans to acquire investment property: a. is deductible as interest expense in the year of prepayment. b. must be amortized over the life of the mortgage. c. may be deducted currently or amortized, at the taxpayer's option. d. may be deducted currently only if doing so does not "materially" distort taxable income. 15. The tax basis is adjusted to reflect: a. depreciation allowances. b. capital improvements. c. partial dispositions. d. all of the above. 16. A taxpayer's adjusted tax basis in a property is: a. its fair market value less the balance of outstanding mortgages. b. the amount of the owner's equity in the property. c. primarily an accounting, rather than a tax concept. d. none of the above. 17. An important aspect of the depreciation allowance is that: a. it is an out of pocket cost of doing business, reducing both cash flow and taxable income. b. the tax shelter it generates can never exceed the income from the property. c. both (a) and (b) are true. d. none of the above is true. 18. When a property is located in a registered historic district: a. it is automatically considered a certified historic structure. b. it is not necessarily considered a certified historic structure. c. it is up to the property owner to decide if the property is of historic significance. d. none of the above. 19. Prepaid mortgage interest on commercial property: a. is deductible in the same pattern as construction-period interest. b. with certain restrictions, is deductible in the year paid. c. can never be deducted. d. none of the above are true. 20. Tax credits: a. reduce taxable income in the year the credit is earned. b. reduce taxable income in the year the credit is recognized. c. are direct offsets against income tax liability. d. are available only to corporations and trusts. 21. Tax credits for rehabilitating historic structures: a. is the same as that for rehabilitating other structures. b. is twice that as for rehabilitating other structures. c. requires that the structure be in a registered historic district. d. are not subject to recapture rules. 22. Passive asset rules do not apply to: a. limited partnership income and losses. b. income and losses from property whose owner is actively engaged in a real estate trade or business. c. income and losses from low-income housing. d. losses that do not exceed $25,000 per annum. 23. Unless a "withholding certificate" is received, certain transactions involving foreign investors require that a portion of the proceeds be withheld and remitted to the IRS. The withholding requirement is imposed: a. on sellers only. b. on buyers only. c. on U.S. citizens (or U.S. companies) only. d. only when there is a taxable gain involved. 24. The realized gain on disposal is: a. always taxed as ordinary income. b. the amount on which tax is due in the year of disposal. c. consideration paid on acquisition, minus consideration received on disposal. d. the market value of consideration received, minus the adjusted tax basis of property conveyed. 25. The treatment of a gain under the installment sales method is: a. determined at the time of the sale. b. determined based on the taxpayer's income each year. c. may change every year depending on when the sale occurred. d. none of the above. 26. In like kind exchanges: a. transaction costs may be considered as a reduction in the proceeds from the old property and a reduction in the realized gain. b. transaction costs may be considered an increase in the purchase price of the acquired property and a reduction in the realized gain. c. transaction costs may be considered an increase in the purchase price of the acquired property and an increase in the realized gain. d. both a and b. 27. The tax basis of property acquired in a like kind exchange: a. is the same as the property given up in the exchange. b. is the same for the new owner as it was for the old owner. c. is the market value of the acquired property, less any unrecognized gain, or plus any unrecognized loss. d. none of the above. 28. In a like kind exchange: a. gains and losses are always deferred until the property is sold. b. gains are always recognized in the year of the transaction, but losses are always deferred. c. gains and losses are recognized in the year of the transaction to the extent "boot" is received or given. d. gains are recognized to the extent of any "boot" received; gains in excess of "boot" received, and all losses, are deferred. 29. Which one of the following would not qualify as a like-kind exchange? a. Limited partnership interest for interest in a land trust b. Vacant land for improved property c. Rural land for urban land d. Shopping center for an apartment complex 30. The tax basis of property acquired in a like-kind exchange must be allocated between land and improvements: a. in the same ratio as used by the previous owner. b. in a ratio that reflects relative market values of land and improvements at the time of the exchange. c. in the same ratio as used for the property tendered in the exchange. d. as specified in the exchange agreement. 31. In a like-kind exchange, gains are: a. recognized in the year of the transaction. b. deferred only if all parties to the transaction qualify for like kind exchange treatment. c. deferred only if neither party has a loss on the transaction. d. recognized to the extent of any "boot" received; the remainder is deferred. 32. The substitute tax basis of property acquired in a like-kind exchange: a. is always the same as the basis of the property tendered in the exchange. b. is always the same for the new owner as it was for the old, unless "boot" is involved. c. is the same for the new owner as it was for the old, even if "boot" is involve. d. is the market value of the substitute property, minus any deferred gain, or plus any deferred loss. 33. Losses realized in a like-kind exchange: a. are recognized to the extent of "boot" received; the balance is deferred. b. must be fully recognized in the year of the transaction, without regard to the existence of "boot". c. must be fully deferred, without regard to the existence of "boot". d. are recognized currently or deferred, at the option of the taxpayer, providing no "boot" was received. 34. The Unified Gift and Inheritance Tax: a. is levied on the recipient of a gift or inheritance. b. is based on the market value of the gift or inheritance. c. is added to the recipient's adjusted tax basis. d. all the above are true. 35. Income multipliers: a. are useful as a preliminary analysis tool to weed out obviously unacceptable investment opportunities. b. are adequate as the sole indication of a property's investment worth. c. relate the property's price or value to after tax cash flow. d. none of the above. 36. The overall capitalization rate: a. is the reciprocal of the net income multiplier. b. is the ratio of net income to favorable financial leverage. c. is the inverse of the debt coverage ratio. d. all of the above are true. 37. The equity dividend rate: a. does not consider financing structures. b. does not consider the effect of income taxes on the value of the investment. c. is the only method which considers future cash flows. d. all of the above. 38. A major problem with the broker's rate of return is: a. it does not consider financing arrangements. b. it does not consider the effect of income taxes on the value of an investment. c. it ignores cash flows after the first year. d. none of the above. 39. The payback period: a. is a simple method of determining a project's acceptability. b. is easily adaptable to each investor's risk preference. c. ignores all cash flows after the payback period. d. all of the above are true. 40. The operating ratio: a. highlights the relationship between net operating income and operating expenses. b. shows the percentage of potential gross income consumed by operating expenses. c. expresses operating expense as a percent or decimal fraction of effective gross income. d. is the reciprocal of the break-even ratio. 41. Gross income multipliers: a. are reciprocal to net income multipliers. b. reflect the relationship between a property's price or value and its gross income. c. are reciprocal to the capitalization rate. d. require more data than do net income multipliers. 42. The break-even ratio: a. is sometimes called the default ratio. b. relates net operating income to operating expenses. c. indicates the relationship between gross income and operating expenses. d. expresses the extent to which net operating income can decline before becoming insufficient to meet the debt service obligation. 43. The overall capitalization rate: a. is the same as the equity dividend rate. b. is reciprocal to the gross income multiplier. c. is also known as the broker's rate of return. d. expresses net operating income as a percent of property price or value. 44. The equity dividend rate: a. incorporates income tax considerations. b. expresses before-tax cash flow as a percent of the required equity cash outlay. c. expresses before-tax cash flow as a percent of the property's value or price. d. expresses net operating income as a percent of the required equity cash outlay. 45. A real estate investment is available at an initial cash outlay of $10,000 and is expected to yield cash flows of $3,343.81 per year for 5 years. The internal rate of return is approximately: a. 2%. b. 20%. c. 23%. d. 17%. 46. Two mutually exclusive projects are available for an investment of $4,900 each. Project S will generate cash flows of $6,000 per year for two years. Project L will generate cash flows of $2,400 per year for six years. At an opportunity cost of capital of 6%, which project will yield the highest net present value? a. Project S b. Project L c. The net present values are equal. d. Cannot be solved with the information provided. 47. The net present value is equal to: a. the present value of expected cash flows, plus the initial cash outlay. b. the present value of expected cash flows, less the initial cash outlay. c. a and c above. d. b and c above. 48. An investment will be considered further when: a. the present value is greater than the initial cash outlay. b. the net present value is greater than zero. c. the internal rate of return is greater than the desired rate of return. d. all the above. 49. The internal rate of return: a. assumes that future cash flows will be reinvested at the internal rate of return. b. may yield an investment decision in conflict with that provided by the net present value method. c. yields consistent results when both positive and negative cash flows are present in an income stream. d. a and b above. 50. Present value: a. in excess of zero means a project is expected to yield a rate of return in excess of the discount rate employed. b. is the value now of all net benefits that are expected to accrue in the future. c. will always equal zero when the discount rate is the internal rate of return. d. will always equal a project's purchase price when the discount rate is the internal rate of return. 51. The internal rate of return: a. will always exceed the discount rate employed to calculate the net present value. b. will exceed the discount rate used to calculate net present value only when the net present value is less than zero. c. will exceed the discount rate used to calculate net present value only when the net present value is equal to zero. d. will exceed the discount rate used to calculate net present value only when the net present value is greater than zero. 52. Investment decision criteria generated with the internal rate of return approach: a. are always unambiguous. b. never conflict with criteria generated with the net present value approach. c. are of limited reliability when comparing investments with different holding periods. d. are generally more reliable than those generated with the net present value approach. 53. Discrepancies between decision signals generated by the internal rate of return and the net present value approaches can result from all the following circumstances except: a. projects differ in size. b. the timing of cash flows differ. c. the reinvestment rate is substantially below the internal rate of return. d. projects have perpetual cash flows. 54. The internal rate of return equation incorporates: a. future cash outflows and inflows, but not initial cash flows. b. future cash outflows and inflows, and initial cash outflow, but not initial cash inflow. c. initial cash outflow and inflow, and future cash inflows, but not future cash outflows. d. initial cash outflow and inflow, and future cash outflow and inflow