CAPS Financial Management and Budgeting 2

Question 1

A Debt Service Coverage Ratio (DSCR) of 1.25 means what in practical terms?

Accepted Answer

NOI covers debt service by 25% more than required

Answer

A DSCR of 1.25 means the property generates $1.25 in NOI for every $1.00 of debt service, providing a 25% buffer.

Question 2

What is zero-based budgeting (ZBB) and how does it differ from incremental budgeting?

Accepted Answer

ZBB builds each budget line from scratch each year; incremental adjusts prior-year figures

Answer

Zero-based budgeting requires justifying every expense from a zero base each period, unlike incremental budgeting which adjusts prior-year figures.

Question 3

Which financial statement shows a property's cash inflows and outflows from operations, investing, and financing activities?

Accepted Answer

Statement of Cash Flows

Answer

The Statement of Cash Flows categorizes all cash movements into operating, investing, and financing activities for a given period.

Question 4

When preparing a portfolio-level operating budget, what is the purpose of a rent roll?

Accepted Answer

It provides a detailed listing of all units, lease terms, and current rents to project revenue

Answer

A rent roll lists every unit with its current rent, lease expiration, and tenant details, forming the foundation for revenue projections.

Question 5

What does the term 'loss-to-lease' represent in multifamily financial analysis?

Accepted Answer

The difference between market rent and actual contracted rent on occupied units

Answer

Loss-to-lease is the gap between current market rent and the lower rent a tenant is currently paying under an existing lease.

CAPS - Certified Apartment Portfolio Supervisor Practice Test