RE Finance

Q1. Which component in the financial statements provides a summary of the company’s value of assets, liabilities, and owner’s equity as at the financial year end?

• A)

  Statement of profit or loss and other comprehensive income

• B)

  Statement of financial position

• C)

  Statement of cash flows

• D)

  Notes to financial statements

Answer explanation

The answer is B).

The statement of financial position (i.e. Balance Sheet) is a summary of the value of assets, liabilities, and owner's equity for a company on a specific date, usually the financial year end.

Q2. Which of the following cashflow is paired correctly with its nature (operating, financing or investing)?

• Option A

• Option B

• Option C

• Option D

Answer explanation

Option A because:

∙ Increase in working capital → Cashflow used in operating activity.

∙ Payment of loans and dividends paid to shareholders → Cashflows used in financing activities.

∙ Cash used in purchase of PPE → Cashflow used in investing activity.

Q3. Based on project financial analysis principles, which of the following are viable projects to be considered? Choose ALL the correct answers.

• Project A

• Project B

• Project C

• Project D

Answer explanation

Projects B and D should be considered as the project IRR is above hurdle rate and project NPV is positive.

Projects A and C should be rejected because:

∙ A's IRR is below hurdle rate of 3.2% and has a negative NPV

∙ C's IRR is below hurdle rate of 4.9% and has a negative NPV

Q4. A plot of land will not be available for sale if it is used for building development. Under this scenario, land AFMV is included in the calculation of project NPV/IRR of the building development.

True or False?

• True

• False

Q5. The REIT Manager is involved in direct management of properties (e.g. renting and upkeep of property, organize events).

True or False?

• True

• False

Answer explanation

The answer is False.

The REIT Manager sets and executes the strategic direction of the REIT while the property manager is involved in direct management of properties (e.g. renting and upkeep of property, organize events).

Q6. Which of the following is not one of the main aims of sale & leaseback?

• A)

  Pursue asset light strategy

• B)

  To increase working capital for daily business operations

• C)

  For dividend payout to shareholders

• D)

  For repayment of loans

Answer explanation

The answer is A).

Cash proceeds from the sale can be used for business activities such as daily operations, purchases of fixed assets, repayment of loans, business expansion or dividend distribution to shareholders. Due to the introduction of new FRS16 accounting standards, sale & leaseback no longer allows companies to achieve an "asset-light" model.

Q7. Property loans are commonly secured by a mortgage where lenders can exercise legal claims on the property in the event of default.

True or False?

• True

• False

Answer explanation

This is true.

Borrower will need to mortgage property to lender as security for their loan. In the event of default, lender can exercise legal claims on the property.