ASC Sensitivity and Scenario Analysis Flashcards

In ARGUS, which assumption change would likely have the greatest impact on overall IRR in a sensitivity analysis?

Answer: A 100 basis point change in exit cap rate

Exit cap rate changes directly drive the terminal value (sale price), which is typically the largest single cash flow event and has an outsized effect on IRR.

When modeling a hold period sensitivity in ARGUS, the analyst is testing:

Answer: How the length of the investment horizon affects returns

A hold period sensitivity tests how returns change if the property is sold earlier or later than the base case assumption.

In ARGUS, what is the impact of increasing the vacancy assumption in a sensitivity analysis?

Answer: It reduces effective gross income and lowers investment returns

Higher vacancy reduces occupied space and therefore rental income, lowering effective gross income, NOI, and ultimately investor returns.

A probability-weighted scenario approach in ARGUS analysis involves:

Answer: Assigning probabilities to each scenario and calculating a weighted expected return

Probability-weighted analysis assigns a likelihood percentage to each scenario (e.g., 60% base, 25% downside, 15% upside) and calculates a weighted average expected return.

In ARGUS sensitivity analysis, a break-even occupancy analysis determines:

Answer: The minimum occupancy rate needed to cover all operating and debt service costs

Break-even occupancy is the minimum leased percentage required to generate enough income to cover operating expenses and debt service without a cash shortfall.

When presenting ARGUS sensitivity results to investors, which format best communicates the range of outcomes?

Answer: A sensitivity matrix or tornado chart showing return range across variable changes

A sensitivity matrix or tornado chart visually communicates how different assumptions drive return variability, giving investors a clear view of the risk-return spectrum.