ASC ASC Debt and Financing Analysis 2 — Questions and Answers
Question 1: In ARGUS, what does the amortization period refer to in debt modeling?
- The term until the loan matures
- The period over which principal payments are calculated (Correct answer)
- The interest-only phase of the loan
- The time remaining until property sale
Correct answer: The period over which principal payments are calculated
The amortization period determines the schedule used to calculate principal repayment, even if the actual loan term is shorter.
Question 2: Which ratio is most commonly used by lenders to determine maximum loan proceeds in commercial real estate?
- Cap rate
- Equity multiple
- DSCR (Correct answer)
- Cash-on-cash return
Correct answer: DSCR
Lenders primarily use DSCR to ensure the property generates sufficient income to cover debt service obligations.
Question 3: In ARGUS, refinancing a property before the hold period ends is modeled by:
- Changing the sale price assumption
- Entering a new loan in the debt schedule at the refinance date (Correct answer)
- Adjusting the equity contribution input
- Modifying the cap rate assumption
Correct answer: Entering a new loan in the debt schedule at the refinance date
To model a refinance, you enter a new loan at the projected refinance date, which pays off the existing debt and resets loan terms.
Question 4: What is a prepayment penalty in the context of ARGUS debt modeling?
- A fee charged when a tenant vacates early
- A charge imposed by the lender when the loan is paid off before maturity (Correct answer)
- An additional interest reserve required at closing
- A fee for extending the loan term
Correct answer: A charge imposed by the lender when the loan is paid off before maturity
A prepayment penalty is a fee the lender charges if the borrower repays the loan before its maturity date.
Question 5: In ARGUS, loan proceeds from a refinancing event appear in the cash flow as:
- Operating income
- A capital event financing inflow (Correct answer)
- Expense reimbursement
- Lease revenue
Correct answer: A capital event financing inflow
Refinancing proceeds appear as a capital event (financing inflow) separate from operating cash flows in the ARGUS model.
Question 6: What does debt yield measure in commercial real estate lending?
- The equity investor's total return
- NOI divided by the loan amount (Correct answer)
- The property's cap rate after financing
- The lender's origination fee as a percentage
Correct answer: NOI divided by the loan amount
Debt yield is calculated as NOI divided by the loan amount and indicates the income return a lender would receive if they took ownership.
ASC ASC Debt and Financing Analysis 2
In ARGUS, what does the amortization period refer to in debt modeling?