Question
a. An investor wishes to buy a 250-room hotel for $32,000 per key. The investor's bank is willing to lend an amount that would create
a. An investor wishes to buy a 250-room hotel for $32,000 per key. The investor's bank is willing to lend an amount that would create a 60% loan to value (LTV) ratio loan. How much is the bank willing to lend to the investor?
| A. | $3,000,000 | |
| B. | $4,800,000 | |
| C. | $3,600,000 | |
| D. | $4,200,000 |
b. A hospitality business owner pays $50,000 per year in interest on loans to her business. The annual net operating income from her business is $220,000. What is this owner's debt coverage ratio?
| A. | 2.0 times | |
| B. | 4.0 times | |
| C. | 2.4 times | |
| D. | 4.4 times |
c. For investors, "financing" is the term used to describe the...
| A. | length of time borrowed money is invested. | |
| B. | methods utilized to obtain the money needed to invest. | |
| C. | amount of money that must be raised to fund a new investment. | |
| D. | estimated returns (ROI) to be generated by a specific investment. |
d. Which is the term used only to describe individuals or companies that are willing to take risks by initially financing promising new businesses?
| A. | Equity Partners | |
| B. | Bankers | |
| C. | Venture capitalists | |
| D. | Capital Investors |
e. For any profitable business investment, it is generally true that...
| A. | the greater the financial leverage, the smaller the ROI achieved by the investor. | |
| B. | the greater the financial leverage, the greater the ROI achieved by the investor. | |
| C. | projects funded with more debt than equity will yield smaller investment returns. | |
| D. | projects funded with more equity than debt will yield greater investment returns. |
f. An investor finances a $4,000,000 project with 80% debt and 20% equity. The interest payment due on the debt in year one is 8%. The investor achieves a net operating income of $600,000 from the project in year one. What is this investor's equity ROI on the project in year one?
| A. | 41% | |
| B. | 45% | |
| C. | 39% | |
| D. | 43% |
g. Which purpose of capital budgeting is LEAST controlled directly by a business' owners?
| A. | Establishment of a business | |
| B. | Increasing business efficiency | |
| C. | Compliance with the law | |
| D. | Expansion of a business |
h. A restaurant manager has a capital lease. The lease calls for a $2,000 per month lease payment, which includes $1,800 in principal and $200 in interest. Prior to entering any information about the lease payments, the manager's operating income line on the USAR formatted income statement for this month shows a positive $20,000. What will be the lease is entered into the income statement?
| A. | $19,800 | |
| B. | $18,000 | |
| C. | $18,200 | |
| D. | $20,000 |
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