Financial Analysis & Valuation Flashcards
7 cards from real REAM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Analysis & Valuation flashcards as text
In a real estate discounted cash flow model, what does a positive Net Present Value (NPV) indicate?
Answer: The present value of projected cash flows exceeds the initial capital invested
A positive NPV means the present value of all expected future cash flows, discounted at the required rate of return, exceeds the initial investment amount.
An investor contributes $500,000 in equity and receives total distributions of $1,250,000 over a five-year hold. What is the equity multiple?
Answer: 2.5x, calculated as $1,250,000 divided by $500,000
Equity multiple equals total distributions received divided by total equity invested: $1,250,000 / $500,000 = 2.5x.
What does the Operating Expense Ratio (OER) measure in real estate financial analysis?
Answer: Operating expenses expressed as a percentage of effective gross income
OER equals total operating expenses divided by effective gross income, indicating what portion of income is consumed by property operations.
A property has potential gross income of $400,000, operating expenses of $120,000, and annual debt service of $80,000. What is the break-even occupancy rate?
Answer: 50%, calculated as total operating expenses plus debt service divided by potential gross income
Break-even occupancy equals (operating expenses + debt service) / potential gross income: ($120,000 + $80,000) / $400,000 = 50%.
Which formula correctly calculates Effective Gross Income (EGI) for an investment property?
Answer: Potential gross income minus vacancy and credit losses plus other income
EGI equals potential gross income minus vacancy and credit loss allowances, plus any ancillary income streams such as parking fees or laundry revenue.
What is Potential Gross Income (PGI) in real estate financial modeling?
Answer: The total scheduled rental income assuming 100% occupancy at market or contract rates
PGI is the total annual income a property would generate if fully occupied at all times at current market or contracted rents, before any deductions.
In a discounted cash flow analysis, how is the exit (terminal) cap rate typically applied?
Answer: It is applied to the projected NOI at the end of the holding period to estimate resale value
The exit cap rate is applied to the projected NOI in the final year of the holding period to estimate the terminal (resale) value of the property.