CGA Financial Analysis & Reporting 2

Question 1

An appraiser is analyzing a retail property's income statement. Which adjustment is most critical when converting accounting net income to Net Operating Income (NOI)?

Accepted Answer

Add back depreciation and remove mortgage interest

Answer

NOI excludes financing costs (mortgage interest) and non-cash accounting charges (depreciation) to reflect property-level operating performance.

Question 2

A property has Potential Gross Income of $500,000, vacancy and collection loss of 8%, and operating expenses of $180,000. What is the NOI?

Accepted Answer

$280,000

Answer

Effective Gross Income = $500,000 × 0.92 = $460,000; NOI = $460,000 − $180,000 = $280,000.

Question 3

Which ratio measures a property's ability to service debt from its operating income?

Accepted Answer

Debt Coverage Ratio

Answer

The Debt Coverage Ratio (DCR) equals NOI divided by annual debt service, indicating how many times income covers the mortgage payment.

Question 4

When preparing a reconstructed operating statement, which item would a general appraiser EXCLUDE from operating expenses?

Accepted Answer

Mortgage principal and interest payments

Answer

Debt service (mortgage payments) is a financing cost, not an operating expense, and is excluded from the reconstructed operating statement.

Question 5

A net lease requires the tenant to pay base rent plus taxes, insurance, and maintenance. What financial reporting advantage does this structure provide to an appraiser?

Accepted Answer

Expenses are predictable and landlord expense exposure is minimal

Answer

In a net lease, operating expense risk shifts to the tenant, making the landlord's net cash flow more predictable and easier to analyze.

(CGA) Certified General Appraiser Practice Test

(CGA) Certified General Appraiser Practice Test

CGA Financial Analysis & Reporting 2