Investment Metrics Flashcards
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Read the first 7 Investment Metrics flashcards as text
In ARGUS Enterprise, 'modified internal rate of return' (MIRR) differs from IRR because MIRR:
Answer: Assumes interim cash flows are reinvested at the cost of capital rather than the IRR
MIRR assumes interim positive cash flows are reinvested at the cost of capital (not the IRR itself), eliminating the reinvestment rate assumption problem inherent in standard IRR.
When ARGUS Enterprise shows a negative NPV for a proposed acquisition, it indicates:
Answer: The projected returns fall short of the investor's required discount rate
A negative NPV means the PV of projected cash flows discounted at the required rate is less than the acquisition cost — the investment does not meet the return hurdle.
Which of the following correctly describes the 'Loan-to-Value' (LTV) ratio as used in ARGUS Enterprise financing assumptions?
Answer: Loan amount divided by appraised or purchase price
LTV = Loan Amount ÷ Property Value (or purchase price); lenders use it to limit exposure relative to the asset's worth.
In an ARGUS scenario analysis comparing a 'base case,' 'upside case,' and 'downside case,' what is the PRIMARY variable typically adjusted to define the downside case?
Answer: Market rent growth rate and exit cap rate
The downside case typically stresses lower rent growth and a higher exit cap rate simultaneously, as these two variables most severely compress both NOI and reversion value.
A property's 'stabilized yield on cost' is 7.2% and market cap rates are 6.0%. This spread suggests:
Answer: The project creates value since stabilized yield exceeds market cap rate
A stabilized yield on cost above the market cap rate means the completed asset is worth more than it cost to create, representing a positive development or value-add spread.
In ARGUS Enterprise, 'Effective Gross Income' (EGI) is calculated as:
Answer: Gross Potential Income minus Vacancy and Credit Loss plus Miscellaneous Income
EGI = Gross Potential Income − Vacancy & Credit Loss + Miscellaneous Income (parking, antenna, other); it represents total income actually expected to be collected.
Which ARGUS Enterprise metric is most useful for comparing the relative risk of two properties with identical IRRs but different cash flow profiles?
Answer: Return of Capital Ratio (or payback period)
The payback period (or return-of-capital ratio) shows how quickly an investor recovers their initial investment, distinguishing a safe early-income deal from a back-loaded appreciation-dependent deal at the same IRR.