Question 1

Which of the following was NOT stated as contributing to the complication of estimating amount of interest carry?
A) The loan is drawn and interest is calculated on drawn amount
B) Revenue from each type of site varies
C) The rate of repayment of a loan depends on when the parcel is sold
D) Development loan interest rates are usually fixed while market rates fluctuate

Accepted Answer

Development loan interest rates being fixed while market rates fluctuate was not mentioned as a complication in estimating interest carry. The other options relate to variables that affect the calculation of interest carry.

Question 2

The amount to be paid to the lender from each lot sale is included in the:
A) Release schedule
B) Development agreement
C) Cost breakdowns
D) Subcontracts

Accepted Answer

The amount to be paid to the lender from each lot sale is typically included in the release schedule. This schedule outlines the specific amounts and conditions under which the lender releases its interest in the lots, allowing them to be sold free and clear.

Question 3

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

Accepted Answer

The answer of Generally, which of the following is FALSE...

Question 4

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?
A) $8,400
B) $13,215
C) $18,750
D) None of the above

Accepted Answer

The release price is 80% of the total project revenue divided by the number of parcels. 80% of $5,000,000 is $4,000,000. $4,000,000 divided by 300 parcels is $13,215.

Question 5

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

Accepted Answer

When financing land development, the lender generally requires the developer to submit a detailed breakdown of project cost, required zoning changes, and bank references for the general contractor to be used on the project. All of these factors are important considerations for the lender when deciding whether or not to finance the project. Therefore, option D is the correct answer.

Question 6

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?
A) A perfect hedge
B) A straight hedge
C) A cross hedge
D) None of the above

Accepted Answer

This type of hedge is referred to as a cross hedge, which involves using a futures contract to hedge a related but not identical cash or spot position.

Question 7

Which of the following costs should NOT be included in a net present value analysis of a land development project?
A) Land purchase price
B) Property tax
C) General overhead such as personnel costs
D) Developer's profit

Accepted Answer

The answer of Which of the following costs should NOT...

Question 8

An analysis of whether land can be purchased and developed profitably is known as:
A) Financial analysis
B) Feasibility study
C) Turnkey study
D) Project profitability

Accepted Answer

A feasibility study involves analyzing all aspects of a potential development project, including financial feasibility, market demand, regulatory requirements, and other factors, to determine whether the project is viable and can be profitable. Financial analysis, turnkey study, and project profitability are all components of a feasibility study, but they do not encompass the entirety of the process.

Question 9

Which of the following is FALSE regarding the release price?
A) It is usually calculated to pay off the loan when the last lot is sold
B) It is usually calculated to pay off the loan before the last lot is sold
C) Increasing the release price usually lowers the lender's risk
D) Increasing the release price is likely to lower the investor's initial cash flow

Accepted Answer

The release price is typically calculated to ensure the loan is paid off before the last lot is sold, not when the last lot is sold. This strategy helps in managing risk and ensuring the loan is repaid in a timely manner.

Question 10

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

Accepted Answer

All of the above can impact the density of housing in a land development project. The price paid for the land by the developer may affect the financial feasibility of building high-density housing. The terrain of the land may affect the feasibility of building high-density housing on the site. The target market's preferences regarding density may affect the developer's decision to build high-density or low-density housing.

Question 11

A transaction in which two firms trade individual financing advantages to produce more favorable borrowing terms for each is know as an):
A) Interest rate swap
B) Sequential short hedge
C) Cross hedge
D) All of the above

Accepted Answer

An interest rate swap is a financial derivative contract in which two parties exchange interest rate cash flows, typically swapping fixed-rate payments for floating-rate payments, to take advantage of their respective borrowing advantages.

Quiz 17: Financing Land Development Projects

Which of the following was NOT stated as contributing to the complication of estimating amount of interest carry?

The amount to be paid to the lender from each lot sale is included in the:

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

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

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?

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

An analysis of whether land can be purchased and developed profitably is known as:

Which of the following is FALSE regarding the release price?

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

A transaction in which two firms trade individual financing advantages to produce more favorable borrowing terms for each is know as an) :