ASC Investment Metrics 2 — Questions and Answers
Question 1: In ARGUS Enterprise, which metric represents the ratio of net operating income to the total acquisition cost of a property?
- Equity Dividend Rate
- Capitalization Rate (Going-In Cap Rate) (Correct answer)
- Internal Rate of Return
- Cash-on-Cash Return
Correct answer: Capitalization Rate (Going-In Cap Rate)
The going-in cap rate (capitalization rate) divides Year 1 NOI by the total purchase price or acquisition cost.
Question 2: Which ARGUS output measure reflects the total return to an investor including both income and appreciation, expressed as a single annualized percentage?
- Net Present Value
- Equity Multiple
- Internal Rate of Return (IRR) (Correct answer)
- Debt Service Coverage Ratio
Correct answer: Internal Rate of Return (IRR)
IRR is the annualized discount rate that sets the NPV of all cash flows (including sale proceeds) to zero, capturing both income and appreciation.
Question 3: A property has a NOI of $850,000 and is sold at a 6.5% terminal cap rate. What is the reversion value?
- $5,525,000
- $13,076,923 (Correct answer)
- $5,850,000
- $6,250,000
Correct answer: $13,076,923
$850,000 ÷ 0.065 = $13,076,923, which is the terminal or reversion value.
Question 4: In ARGUS Enterprise, the 'Equity Multiple' of 2.0x means the investor:
- Earned a 20% annual return
- Doubled their total equity investment over the holding period (Correct answer)
- Received twice the property's NOI in cash
- Achieved an IRR of 200%
Correct answer: Doubled their total equity investment over the holding period
An equity multiple of 2.0x means total distributions returned to the investor equal twice the original equity invested.
Question 5: Which scenario would most likely DECREASE the unleveraged IRR in an ARGUS model?
- Increasing the residual cap rate assumption (Correct answer)
- Shortening the holding period with strong rental growth
- Decreasing the discount rate
- Adding above-market leases to the rent roll
Correct answer: Increasing the residual cap rate assumption
A higher residual (terminal) cap rate lowers the reversion value, reducing total proceeds and therefore the unleveraged IRR.
Question 6: What does the 'Debt Service Coverage Ratio' (DSCR) measure in an ARGUS investment analysis?
- The ratio of equity to total debt
- NOI divided by annual debt service payments (Correct answer)
- Gross income divided by total expenses
- The loan-to-value ratio at acquisition
Correct answer: NOI divided by annual debt service payments
DSCR = NOI ÷ Annual Debt Service; a ratio above 1.0 means the property generates sufficient income to cover debt payments.
Question 7: In ARGUS Enterprise, which analysis compares the present value of all future cash flows to the initial investment to measure value creation?
- Sensitivity Analysis
- Net Present Value (NPV) Analysis (Correct answer)
- Debt Yield Analysis
- Break-Even Analysis
Correct answer: Net Present Value (NPV) Analysis
NPV analysis discounts all projected cash flows at the required rate of return; a positive NPV indicates the investment creates value above the hurdle rate.
ASC Investment Metrics 2
In ARGUS Enterprise, which metric represents the ratio of net operating income to the total acquisition cost of a property?