CAM Financial Analysis and Reporting 3 — Questions and Answers
Question 1: Which of the following is NOT included when calculating Effective Gross Income (EGI)?
- Mortgage principal payments (Correct answer)
- Laundry income
- Late fees
- Vacancy loss deduction
Correct answer: Mortgage principal payments
Mortgage payments are a below-the-line financing cost and are never part of EGI calculation.
Question 2: A property's debt service is $200,000 annually and its NOI is $260,000. What is the Debt Service Coverage Ratio (DSCR)?
- 1.30 (Correct answer)
- 1.15
- 0.77
- 1.50
Correct answer: 1.30
DSCR = NOI / Debt Service = $260,000 / $200,000 = 1.30.
Question 3: In apartment accounting, a security deposit held in trust is recorded on the balance sheet as:
- A liability (Correct answer)
- An asset
- Revenue
- An expense
Correct answer: A liability
Security deposits belong to residents until forfeited, so they are recorded as a liability (obligation to return).
Question 4: Which budgeting method requires every expense to be justified from zero each budget cycle rather than basing it on the prior year?
- Zero-based budgeting (Correct answer)
- Incremental budgeting
- Rolling budget
- Capital budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting starts from a 'zero base' each cycle, requiring justification for every line item.
Question 5: An apartment property has 100 units at $1,000/month market rent and runs 5% vacancy. What is the annual EGI before other income?
- $1,140,000 (Correct answer)
- $1,200,000
- $1,000,000
- $1,100,000
Correct answer: $1,140,000
GPR = 100 × $1,000 × 12 = $1,200,000; minus 5% vacancy ($60,000) = $1,140,000 EGI.
Question 6: The break-even occupancy ratio tells a manager:
- The minimum occupancy needed to cover all operating expenses and debt service (Correct answer)
- The occupancy level at which the property reaches maximum profit
- The average occupancy rate over the past 12 months
- The physical occupancy rate at the time of reporting
Correct answer: The minimum occupancy needed to cover all operating expenses and debt service
Break-even occupancy = (Operating Expenses + Debt Service) / GPR, showing the floor needed to avoid losses.
Question 7: Replacement reserves on an operating budget represent funds set aside for:
- Major capital items that will eventually need replacement, such as HVAC or roofs (Correct answer)
- Monthly routine maintenance labor costs
- Emergency repairs costing under $500
- Owner distributions each quarter
Correct answer: Major capital items that will eventually need replacement, such as HVAC or roofs
Replacement reserves fund the eventual replacement of long-lived capital items like roofs, HVAC, and appliances.
CAM Financial Analysis and Reporting 3
Which of the following is NOT included when calculating Effective Gross Income (EGI)?