CCIM 101 - FINANCIAL ANALYSIS FOR
COMMERCIAL REAL ESTATE
QUESTIONS AND ANSWERS 100%
VERIFIED. JUST RELEASED
1. Which of the following best describes the Internal Rate of Return (IRR)?
A. The discount rate at which the Net Present Value (NPV) equals zero.
B. The annual profit expressed as a percentage of the total project cost.
C. The capitalization rate applied to the terminal year’s income.
D. The difference between the present value of cash inflows and outflows.
Answer: A
Conceptual Explanation: The IRR is the specific discount rate that makes the sum of all
discounted future cash flows equal to the initial investment (NPV = 0).
2. If a property’s Net Operating Income (NOI) is $120,000 and the market cap rate is 6%, what
is the estimated property value?
A. $720,000
B. $1,200,000
,C. $20,000,000
D. $2,000,000
Answer: D
Conceptual Explanation: Value = NOI / Cap Rate. $120,.06 = $2,000,000.
3. Which formula is used to calculate the Debt Coverage Ratio (DCR)?
A. Loan Amount / Property Value
B. Effective Gross Income / Operating Expenses
C. Before-Tax Cash Flow / Equity Investment
D. Net Operating Income / Annual Debt Service
Answer: D
Conceptual Explanation: DCR measures the property’s ability to cover its debt payments
using its income. It is NOI divided by the annual mortgage payment.
4. A commercial building is purchased for $5,000,000, with 20% allocated to land. What is the
annual depreciation deduction for tax purposes (rounded)?
A. $102,564
B. $181,818
C. $145,455
D. $128,205
, Answer: A
Conceptual Explanation: Only the building is depreciable. $5,000,000 * 80% = $4,000,000.
For commercial property, the recovery period is 39 years. $4,000, = $102,564.
5. Positive leverage occurs when:
A. The cost of debt is higher than the cap rate.
B. The property’s yield is higher than the cost of debt.
C. The LTV ratio is above 80%.
D. The Before-Tax Cash Flow is greater than the Net Operating Income.
Answer: B
Conceptual Explanation: Positive leverage exists when the return on assets (unleveraged
return) is greater than the interest rate paid on borrowed funds, thereby increasing the
return on equity.
6. What is the calculation for Taxable Income?
A. NOI - Debt Service + Depreciation
B. BTCF - Depreciation
C. NOI - Interest - Depreciation + Replacement Reserves
D. EGI - Operating Expenses - Principal Payments
Answer: C
COMMERCIAL REAL ESTATE
QUESTIONS AND ANSWERS 100%
VERIFIED. JUST RELEASED
1. Which of the following best describes the Internal Rate of Return (IRR)?
A. The discount rate at which the Net Present Value (NPV) equals zero.
B. The annual profit expressed as a percentage of the total project cost.
C. The capitalization rate applied to the terminal year’s income.
D. The difference between the present value of cash inflows and outflows.
Answer: A
Conceptual Explanation: The IRR is the specific discount rate that makes the sum of all
discounted future cash flows equal to the initial investment (NPV = 0).
2. If a property’s Net Operating Income (NOI) is $120,000 and the market cap rate is 6%, what
is the estimated property value?
A. $720,000
B. $1,200,000
,C. $20,000,000
D. $2,000,000
Answer: D
Conceptual Explanation: Value = NOI / Cap Rate. $120,.06 = $2,000,000.
3. Which formula is used to calculate the Debt Coverage Ratio (DCR)?
A. Loan Amount / Property Value
B. Effective Gross Income / Operating Expenses
C. Before-Tax Cash Flow / Equity Investment
D. Net Operating Income / Annual Debt Service
Answer: D
Conceptual Explanation: DCR measures the property’s ability to cover its debt payments
using its income. It is NOI divided by the annual mortgage payment.
4. A commercial building is purchased for $5,000,000, with 20% allocated to land. What is the
annual depreciation deduction for tax purposes (rounded)?
A. $102,564
B. $181,818
C. $145,455
D. $128,205
, Answer: A
Conceptual Explanation: Only the building is depreciable. $5,000,000 * 80% = $4,000,000.
For commercial property, the recovery period is 39 years. $4,000, = $102,564.
5. Positive leverage occurs when:
A. The cost of debt is higher than the cap rate.
B. The property’s yield is higher than the cost of debt.
C. The LTV ratio is above 80%.
D. The Before-Tax Cash Flow is greater than the Net Operating Income.
Answer: B
Conceptual Explanation: Positive leverage exists when the return on assets (unleveraged
return) is greater than the interest rate paid on borrowed funds, thereby increasing the
return on equity.
6. What is the calculation for Taxable Income?
A. NOI - Debt Service + Depreciation
B. BTCF - Depreciation
C. NOI - Interest - Depreciation + Replacement Reserves
D. EGI - Operating Expenses - Principal Payments
Answer: C
