Financial Management Flashcards
6 cards from real CPM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Financial Management flashcards as text
What is 'Net Operating Income' (NOI) in real estate?
Answer: Effective gross income minus operating expenses before debt service
NOI equals effective gross income minus all operating expenses, but excludes debt service (mortgage payments) and capital expenditures.
Which of the following is NOT typically included in operating expenses for a property?
Answer: Mortgage principal payments
Mortgage principal payments are a financing expense (debt service), not an operating expense, and are excluded from the NOI calculation.
What is a 'capital expenditure' (CapEx) in property management?
Answer: Major improvements or replacements that extend the asset's useful life
Capital expenditures are major investments—like roof replacement or HVAC installation—that improve or extend the life of the property beyond one year.
Which ratio measures a property's ability to cover its debt payments from NOI?
Answer: Debt coverage ratio (DCR)
The debt coverage ratio (DCR) equals NOI divided by annual debt service; lenders typically require a DCR of at least 1.25.
Effective Gross Income (EGI) is calculated as:
Answer: Gross potential income minus vacancy and credit losses plus miscellaneous income
EGI = Gross Potential Income − Vacancy & Credit Losses + Other Income (laundry, parking, fees).
What is a 'cash-on-cash return'?
Answer: Annual pre-tax cash flow divided by total equity invested
Cash-on-cash return measures annual pre-tax cash flow (after debt service) divided by the total cash equity invested.