CIA Financial Analysis & Reporting 2

Question 1

An insurance appraiser is reviewing a property's income statement. Which metric best represents the property's ability to generate profit after all operating expenses but before interest and taxes?

Accepted Answer

Operating Income (EBIT)

Answer

Operating Income (EBIT) measures profitability after operating expenses but before interest and tax deductions, making it the best measure of core operational performance.

Question 2

A commercial property generates $500,000 in gross rental income. After vacancy losses of $25,000 and operating expenses of $175,000, what is the Net Operating Income (NOI)?

Accepted Answer

$300,000

Answer

NOI = Gross Income − Vacancy Losses − Operating Expenses = $500,000 − $25,000 − $175,000 = $300,000.

Question 3

When analyzing an insured property's financial statements for a business interruption claim, which document most directly shows daily cash inflows and outflows?

Accepted Answer

Statement of cash flows

Answer

The statement of cash flows directly tracks actual cash inflows and outflows during a period, making it essential for business interruption analysis.

Question 4

A property owner files a loss-of-rents claim. The appraiser finds that comparable properties in the area have a 6% capitalization rate and the property's NOI is $90,000. What is the indicated property value?

Accepted Answer

$1,500,000

Answer

Value = NOI ÷ Cap Rate = $90,000 ÷ 0.06 = $1,500,000.

Question 5

In insurance appraisal, 'accounts receivable coverage' protects a business primarily against which type of loss?

Accepted Answer

Destruction of records making collections uncollectable

Answer

Accounts receivable coverage protects against loss when records are destroyed by a covered peril, preventing the business from proving and collecting amounts owed.

(CIA) Certified Insurance Appraiser Practice Test

(CIA) Certified Insurance Appraiser Practice Test

CIA Financial Analysis & Reporting 2