ASC Financial Reporting 3 — Questions and Answers
Question 1: In ARGUS, the 'Available Cash Flow' line on a cash flow report is best described as:
- NOI minus capital expenditures and debt service (Correct answer)
- Gross revenue minus vacancy only
- NOI before deducting any expenses
- Total revenue including financing proceeds
Correct answer: NOI minus capital expenditures and debt service
Available Cash Flow (also called cash-on-cash or equity cash flow) equals NOI less capital expenditures and debt service obligations.
Question 2: Which ARGUS feature allows a user to model the impact of a single variable, such as market rent, across a range of values on IRR or value?
- Scenario Manager
- Sensitivity Analysis (Correct answer)
- Inflation Indexing
- Lease Audit Tool
Correct answer: Sensitivity Analysis
Sensitivity Analysis in ARGUS tests how changes in a single input variable—like market rent or cap rate—affect key output metrics such as IRR.
Question 3: When a lease has a 'Base Stop' recovery structure in ARGUS, what does the base stop amount represent?
- The minimum guaranteed rent the tenant must pay
- The expense level above which the tenant reimburses the landlord (Correct answer)
- The maximum cap on tenant recoveries
- The floor on market rent during renewal
Correct answer: The expense level above which the tenant reimburses the landlord
A base stop is the per-square-foot expense threshold; any operating expenses above this level are passed through to the tenant.
Question 4: In ARGUS financial reports, 'Tenant Improvements' (TIs) are classified as:
- Operating expenses deducted in NOI calculation
- Capital expenditures appearing below NOI (Correct answer)
- Lease revenue adjustments reducing effective rent
- Financing costs added to the mortgage balance
Correct answer: Capital expenditures appearing below NOI
TIs are capital expenditures that appear below the NOI line, reducing cash flow available to investors but not included in NOI.
Question 5: What does the 'Effective Gross Revenue' (EGR) line represent in an ARGUS cash flow report?
- Total scheduled base rent from all leases
- Potential gross revenue minus vacancy and credit loss (Correct answer)
- NOI before operating expenses
- Gross revenue plus tenant recoveries
Correct answer: Potential gross revenue minus vacancy and credit loss
EGR equals Potential Gross Revenue (PGR) less vacancy and credit loss, representing revenue actually collected from tenants.
Question 6: In ARGUS, a 'Free Rent' period entered on a lease will appear in financial reports as:
- A negative expense line item
- Zero rent revenue during those periods, reducing scheduled base rent (Correct answer)
- A deferred rent liability on the balance sheet
- An increase to operating expenses for that period
Correct answer: Zero rent revenue during those periods, reducing scheduled base rent
Free rent means no cash rent is collected during those months, so scheduled base rent shows zero for that period in the cash flow.
Question 7: The 'Unleveraged IRR' in an ARGUS report differs from 'Leveraged IRR' because it:
- Uses net present value instead of internal rate of return
- Ignores the effect of debt financing on returns to equity (Correct answer)
- Only includes NOI and excludes reversion proceeds
- Is calculated before subtracting operating expenses
Correct answer: Ignores the effect of debt financing on returns to equity
Unleveraged (unlevered) IRR measures property-level return on total investment without the amplifying or diluting effects of debt financing.
ASC Financial Reporting 3
In ARGUS, the 'Available Cash Flow' line on a cash flow report is best described as: