Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 2

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Prepare for the CAPS Exam with a comprehensive study of Module 2. Utilize our practice resources filled with flashcards, multiple choice questions, and thorough explanations to ensure your success!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What does the debt coverage ratio (DCR) indicate about a property's financial health?

It measures the property's market value
It shows the property's ability to repay the loan
It reflects the property's gross income
It determines the rate of return on investment

The correct answer is: It shows the property's ability to repay the loan

The debt coverage ratio (DCR) is an important financial metric used to assess a property's ability to generate sufficient income to cover its debt obligations. This ratio specifically compares the net operating income (NOI) of the property to the total debt service, which includes principal and interest payments on loans. A DCR greater than 1 indicates that the property generates enough income to cover its debt payments, while a DCR less than 1 suggests that the property may struggle to meet its financial obligations. In relation to the other choices, while the DCR is influenced by the property's gross income and reflects aspects of its financial performance, its primary function is not to measure market value or determine the rate of return on investment. Therefore, the correct answer highlights the DCR's role in showing how well a property can repay its loan, which is a key indicator of its financial health and risk profile for investors and lenders.