ASC Investment Metrics 3

Question 1

A leveraged IRR is typically HIGHER than an unleveraged IRR when:

Accepted Answer

The cap rate exceeds the cost of debt (positive leverage)

Answer

The property is declining in value

Answer

The cost of debt exceeds the cap rate

Answer

Interest rates are rising

Question 2

In ARGUS Enterprise, the 'Yield on Cost' metric is calculated as:

Accepted Answer

Stabilized NOI divided by total project cost

Answer

Purchase price divided by NOI

Answer

Levered cash flow divided by equity invested

Answer

Terminal NOI divided by sale price

Question 3

When running a sensitivity analysis in ARGUS Enterprise, which combination of variables is most commonly tested for IRR sensitivity?

Accepted Answer

Exit cap rate and rent growth rate

Answer

Tenant improvement costs and parking revenue

Answer

Property tax rate and insurance costs

Answer

Vacancy rate and property management fees

Question 4

What is the 'Debt Yield' metric, and why do lenders use it?

Accepted Answer

Loan amount divided by NOI; measures the lender's return if they took the property back

Answer

NOI divided by appraised value; measures cap rate from the lender's perspective

Answer

Loan amount divided by property value; same as LTV

Answer

Annual interest payments divided by NOI; same as debt service coverage

Question 5

In an ARGUS Enterprise cash flow projection, 'before-tax cash flow' is calculated as:

Accepted Answer

NOI minus Debt Service (principal + interest)

Answer

NOI minus depreciation

Answer

Effective Gross Income minus Operating Expenses

Answer

Gross Potential Rent minus Vacancy

Question 6

A property with a cap rate of 5.5% and a discount rate of 7.5% will show a DCF value that is:

Accepted Answer

Lower than the direct capitalization value

Answer

Equal to the direct capitalization value

Answer

Higher than the direct capitalization value

Answer

Unrelated to the cap rate assumption

Question 7

In ARGUS Enterprise, which holding period assumption would typically produce the HIGHEST IRR, assuming strong rent growth?

Accepted Answer

3-year hold

Answer

7-year hold

Answer

10-year hold

Answer

15-year hold