Investment Metrics Flashcards

In ARGUS Enterprise, which metric represents the ratio of net operating income to the total acquisition cost of a property?

Answer: Capitalization Rate (Going-In Cap Rate)

The going-in cap rate (capitalization rate) divides Year 1 NOI by the total purchase price or acquisition cost.

Which ARGUS output measure reflects the total return to an investor including both income and appreciation, expressed as a single annualized percentage?

Answer: Internal Rate of Return (IRR)

IRR is the annualized discount rate that sets the NPV of all cash flows (including sale proceeds) to zero, capturing both income and appreciation.

A property has a NOI of $850,000 and is sold at a 6.5% terminal cap rate. What is the reversion value?

Answer: $13,076,923

$850,000 ÷ 0.065 = $13,076,923, which is the terminal or reversion value.

In ARGUS Enterprise, the 'Equity Multiple' of 2.0x means the investor:

Answer: Doubled their total equity investment over the holding period

An equity multiple of 2.0x means total distributions returned to the investor equal twice the original equity invested.

Which scenario would most likely DECREASE the unleveraged IRR in an ARGUS model?

Answer: Increasing the residual cap rate assumption

A higher residual (terminal) cap rate lowers the reversion value, reducing total proceeds and therefore the unleveraged IRR.

What does the 'Debt Service Coverage Ratio' (DSCR) measure in an ARGUS investment analysis?

Answer: NOI divided by annual debt service payments

DSCR = NOI ÷ Annual Debt Service; a ratio above 1.0 means the property generates sufficient income to cover debt payments.

In ARGUS Enterprise, which analysis compares the present value of all future cash flows to the initial investment to measure value creation?

Answer: Net Present Value (NPV) Analysis

NPV analysis discounts all projected cash flows at the required rate of return; a positive NPV indicates the investment creates value above the hurdle rate.