ASC ASC Sensitivity and Scenario Analysis 2 — Questions and Answers
Question 1: When running a two-variable sensitivity table in ARGUS, the analyst is testing:
- The impact of two tenants vacating simultaneously
- How two inputs jointly affect a single output metric (Correct answer)
- Two different hold period lengths side by side
- Two separate properties in a portfolio context
Correct answer: How two inputs jointly affect a single output metric
A two-variable sensitivity table displays how combinations of two assumption changes (e.g., rent growth and exit cap rate) affect a single output like IRR.
Question 2: In ARGUS, a downside scenario typically includes which adjustments?
- Higher rent growth and lower vacancy
- Lower rent growth, higher vacancy, and a higher exit cap rate (Correct answer)
- Lower cap rates and faster lease-up assumptions
- Reduced expenses and higher tenant retention rates
Correct answer: Lower rent growth, higher vacancy, and a higher exit cap rate
A downside scenario models pessimistic conditions: slower rent growth, higher vacancy, and an expanded exit cap rate that reduces sale proceeds.
Question 3: What is the purpose of stress testing a real estate model in ARGUS?
- To check the software for calculation bugs
- To evaluate property performance under extreme adverse conditions (Correct answer)
- To optimize the lease structure for maximum rent
- To verify individual tenant creditworthiness
Correct answer: To evaluate property performance under extreme adverse conditions
Stress testing pushes assumptions to extreme negative values to determine how much deterioration the investment can withstand before failing underwriting thresholds.
Question 4: In ARGUS, sensitivity analysis on market rent growth would most directly impact which line item?
- Real estate tax expense
- Effective gross income (Correct answer)
- Annual debt service
- Capital expenditure reserves
Correct answer: Effective gross income
Market rent growth assumptions directly drive future rental revenue, affecting effective gross income and all downstream cash flow and return metrics.
Question 5: Which of the following is NOT a typical variable tested in an ARGUS sensitivity analysis?
- Exit cap rate
- Market rent growth
- Tenant's personal FICO score (Correct answer)
- Vacancy rate
Correct answer: Tenant's personal FICO score
Tenant FICO scores are personal credit metrics unrelated to ARGUS's property-level cash flow modeling assumptions.
Question 6: In ARGUS scenario analysis, an upside scenario is valuable because it:
- Replaces the base case as the primary underwriting assumption
- Defines the maximum potential return under favorable market conditions (Correct answer)
- Is required by lenders for all loan underwriting submissions
- Eliminates uncertainty from the investment analysis
Correct answer: Defines the maximum potential return under favorable market conditions
The upside scenario illustrates the best reasonably achievable outcome, helping investors understand the investment's return ceiling under favorable conditions.
ASC ASC Sensitivity and Scenario Analysis 2
When running a two-variable sensitivity table in ARGUS, the analyst is testing: