Question

Question 9

Which of the following is True?

	a.	Purchasing gives a corporation the option to maximize use of a property. If a corporation owns it, it can make changes to bring the asset to its highest and best use.
	b.	Real estate always has a higher current return than the typical investment that the corporation makes. Thus, owning the real estate always increases the company’s return on assets.
	c.	The riskiness of cash flow from the residual value of the real estate is always similar to the riskiness of cash flow from the corporation’s core business.
	d.	The capital commitments with owning are lower than the capital commitments associated with leasing.

1 points   

QUESTION 10

Why might it be argued that corporations do not have a comparative advantage when investing in real estate as a means of diversification from the core business?

	a.	Diversification dilutes a corporations risk-return profile and does not provide an advantage to corporations
	b.	Corporations often use property managers who do not understand financial markets
	c.	Corporations do not typically hold real estate in a large number of geographic areas and may not hold a variety of different types of properties
	d.	Corporations cannot react as quickly as individual investors to changes in market conditions

Answer 1

Solution:-

Question 9 Which of the following is True:-

b. Real estate always has a higher current return than the typical investment that the corporation makes. Thus, owning the real estate always increases the company’s return on assets.

Question 10 Why might it be argued that corporations do not have a comparative advantage when investing in real estate as a means of diversification from the core business:-

c. Corporations do not typically hold real estate in a large number of geographic areas and may not hold a variety of different types of properties

Explanation:-

Corporations do not typically hold real estate in a large number of geographic areas and may not hold a variety of different types of properties. Thus, they can not diversify their real estate holdings as much as a large institutional investor that holds a much larger and more diversified portfolio.