Write a detailed paragraph containing an example where appropriate, to show your

Question

Write a detailed paragraph containing an example where appropriate, to show your understanding of all eight of the following. Each answer is worth 5 marks Q21 a) Why do people borrow to finance property? b) The anticipation principle c) The Internal Rate of Return d) The three R's of credit to the mortgagee e) The pros and cons of using the discounted cash flow method to analyse a property investment proposition? f) What is a Crosslease title and why is it also freehold? g) The advantages and disadvantages of investing in property h) Facility Management [Total: 40 marks]

Explanation / Answer

Ans:

(a) The main reason people borrow finance property is the price of property incease over short period of time. This type of funding is done by landlords and developers to move to secure purchase. They can move to next stage of project or property development.

(b) The Anticipation Principle, it refers to rule on which current value of property depends. This means the value of the property depends on the utility or income that will be received by the owner in the future.

(c) Internal Rate of Return is also known as discounted cash flow rate of return. IRR it helps managers to rank projects by their overall rates of return rather than their net present values, and the investment with the highest IRR is usually preferred. Internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

(d) The three R's of credit to mortgage are- (i) Return, it is the return from the investment. The banker must have an idea about the return, and the credit will be accepted when borrower is able to generate returns that will enable him to come over the costs. (ii) Repayment Capacity, it is the borrower ability to clear off the loanamount. The loan should not only be profitable but also have potential for effecting repayment. (iii) Risk Bearing ability, it is the ability of the borrower to withstand the risks that can arise because of a financial loss. The borrower can satisfy banker with returns and repayments capacity, but another factor to be fulfilled is risk bearing ability. It can be identified through statistical techniques like coefficient of variation, standard deviation & programming models.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.