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Chapter 11 Traditional Investment Criteria

Chapter 11 Traditional Investment Criteria

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Chapter 11 Traditional Investment Criteria

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  1. Chapter 11Traditional Investment Criteria • Rules of Thumb Criteria • General Characteristics • Payback Period Methods • Gross Income Multiplier • Net Income Multiplier • BTCF Multiplier (Re) • ATCF Multiplier

  2. Chapter 11Traditional Investment Criteria • Rules of Thumb Criteria • Average Rate of Return Methods • Average Rate on Net Operating Income • Average Rate on Before Tax Cash Flow • Average Rate on After Tax Cash Flow • Adjusting for Reversion • Decision Rules • Limitations of Rules of Thumb

  3. Chapter 11Traditional Investment Criteria • Ratio Analysis • Leverage and Operating Ratios • Mortgage Debt to Property Value Ratio (LTV) • Debt Coverage Ratio (DCR) • Default Ratio (DR) • Total Asset Turnover Ratio (TAT) • Operating Expense Ratio (OER)

  4. Chapter 11Traditional Investment Criteria • Ratio Analysis • Profitability Ratios • Profit Margin Ratio • Return to Equity on Total Investment • Return on Equity • “System of Financial Analysis” • Limitations of Ratio Analysis

  5. Chapter 11Traditional Investment Criteria • Traditional Appraisal Methods • Key Concepts • Anticipation - TVM • Change - Four Forces • Substitution • Contribution

  6. Chapter 11Traditional Investment Criteria • Traditional Appraisal Methods • Sales Comparison Approach • Comparable sales data • Selection • How many comparables?

  7. Chapter 11Traditional Investment Criteria • Traditional Appraisal Methods • Sales Comparison Approach • Adjustment of sales data • Elements of comparison • Property rights conveyed • Conditions of sale • Financing terms • Market conditions • Locational characteristics • Physical characteristics

  8. Chapter 11Traditional Investment Criteria • Traditional Appraisal Methods • Cost Approach • Estimating site value • Estimating Building Cost • Reproduction cost • Replacement cost • Estimating accrued depreciation • Physical deterioration • Functional obsolescence • Economic obsolescence • Entrepreneurial Incentive

  9. Chapter 11Traditional Investment Criteria • Traditional Appraisal Methods • Income Approach • Gross income multiplier • Net income capitalization • Discounted cash flow