Certified Residential Appraiser Practice Exam

Disable ads (and more) with a membership for a one time $4.99 payment

Study for the Certified Residential Appraiser Exam. Use flashcards and multiple choice questions with hints and explanations. Ensure you're ready for your certification!

Practice this question and more.

What is the primary function of Discounted Cash Flow Analysis?

To evaluate property taxes
To estimate property depreciation
To determine the required yield from an investment property
To calculate the market value of nearby properties

The correct answer is: To determine the required yield from an investment property

The primary function of Discounted Cash Flow (DCF) Analysis is to determine the required yield from an investment property. This method allows appraisers and investors to evaluate the potential profitability of an investment by analyzing the expected future cash flows that the property is anticipated to generate over time, discounting those cash flows back to their present value using a specific discount rate. By applying this analysis, investors can assess the viability of an investment based on its ability to generate income, and determine if the expected return meets their required yield for investment. This approach is essential for making informed decisions regarding property investments and understanding the risk and return profile associated with different real estate opportunities.