ASC Sensitivity and Scenario Analysis Flashcards
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Read the first 6 ASC Sensitivity and Scenario Analysis flashcards as text
When running a two-variable sensitivity table in ARGUS, the analyst is testing:
Answer: How two inputs jointly affect a single output metric
A two-variable sensitivity table displays how combinations of two assumption changes (e.g., rent growth and exit cap rate) affect a single output like IRR.
In ARGUS, a downside scenario typically includes which adjustments?
Answer: Lower rent growth, higher vacancy, and a higher exit cap rate
A downside scenario models pessimistic conditions: slower rent growth, higher vacancy, and an expanded exit cap rate that reduces sale proceeds.
What is the purpose of stress testing a real estate model in ARGUS?
Answer: To evaluate property performance under extreme adverse conditions
Stress testing pushes assumptions to extreme negative values to determine how much deterioration the investment can withstand before failing underwriting thresholds.
In ARGUS, sensitivity analysis on market rent growth would most directly impact which line item?
Answer: Effective gross income
Market rent growth assumptions directly drive future rental revenue, affecting effective gross income and all downstream cash flow and return metrics.
Which of the following is NOT a typical variable tested in an ARGUS sensitivity analysis?
Answer: Tenant's personal FICO score
Tenant FICO scores are personal credit metrics unrelated to ARGUS's property-level cash flow modeling assumptions.
In ARGUS scenario analysis, an upside scenario is valuable because it:
Answer: Defines the maximum potential return under favorable market conditions
The upside scenario illustrates the best reasonably achievable outcome, helping investors understand the investment's return ceiling under favorable conditions.