ASC Evaluation Details and Structure 2

Question 1

In ARGUS DCF analysis, what does the 'reversion value' represent?

Accepted Answer

The estimated sale proceeds at the end of the holding period

Answer

The total rental income collected over the holding period

Answer

The accumulated depreciation on the property

Answer

The present value of all future lease renewals

Question 2

How is the terminal cap rate used differently from the going-in cap rate in ARGUS?

Accepted Answer

Going-in cap rate values the property at acquisition; terminal cap rate estimates the reversion value at the end of the holding period

Answer

Terminal cap rate sets initial purchase price; going-in cap rate sets the sale price

Answer

They are interchangeable and produce identical outputs

Answer

Terminal cap rate applies only to retail properties; going-in applies to office

Question 3

Which ARGUS input most directly controls the length of the discounted cash flow projection?

Accepted Answer

Holding period (analysis period)

Answer

Discount rate

Answer

Lease term of the anchor tenant

Answer

Loan amortization schedule

Question 4

When ARGUS calculates IRR, what two components of return does it combine?

Accepted Answer

Periodic cash flows during the holding period and the net reversion proceeds at sale

Answer

NOI yield and expense growth

Answer

Gross potential rent and effective gross income

Answer

Debt service coverage and loan-to-value ratio

Question 5

In ARGUS, the going-in cap rate is applied to which cash flow metric to derive property value?

Accepted Answer

Net Operating Income (NOI)

Answer

Effective Gross Income (EGI)

Answer

Cash flow before debt service (unlevered cash flow)

Answer

Gross Potential Rent (GPR)

Question 6

What happens to the discount rate in ARGUS if a property is considered to have higher investment risk?

Accepted Answer

The discount rate increases to reflect a higher required return for the added risk

Answer

The discount rate decreases to reflect lower required returns

Answer

The discount rate is locked and cannot be changed by the analyst

Answer

Risk has no effect on the discount rate; it only affects the cap rate

Question 7

In a standard ARGUS evaluation, which year's NOI is typically capitalized to estimate the terminal (reversion) value?

Accepted Answer

The NOI of the year immediately following the end of the holding period

Answer

Year 1 NOI of the analysis period

Answer

Average NOI across all projection years

Answer

NOI from the first stabilized year of the property