CPM Financial Management 2

Question 1

What does 'capitalization rate' (cap rate) represent?

Accepted Answer

NOI divided by property value, expressing the unleveraged return

Answer

The cap rate equals NOI divided by property value and represents the unleveraged rate of return on a property.

Question 2

In property budgeting, what is a 'variance'?

Accepted Answer

The difference between budgeted and actual figures

Answer

A variance is the difference between a budgeted amount and actual performance, used to identify areas needing management attention.

Question 3

Which budget type projects expected income and expenses for a forthcoming 12-month period?

Accepted Answer

Operating budget

Answer

An operating budget forecasts revenues and expenses for daily property operations over a 12-month period.

Question 4

What is a 'reserve fund' in property management?

Accepted Answer

Money set aside from operations for future major repairs or replacements

Answer

A reserve fund accumulates money over time to cover anticipated major capital expenditures such as roof replacement or parking lot resurfacing.

Question 5

Which method of accounting records revenue and expenses when cash is actually received or paid?

Accepted Answer

Cash-basis accounting

Answer

Cash-basis accounting records transactions only when cash changes hands, making it simpler but less reflective of true financial performance.

CPM - Certified Property Manager Practice Test