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

Disable ads (and more) with a membership for a one time $2.99 payment

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.

Which of the following best describes DCR?

Debt Coverage Rate
Debt Capital Ratio
Direct Cost Ratio
Debt Compliance Requirement

The correct answer is: Debt Coverage Rate

The correct answer, Debt Coverage Rate, refers to a vital financial metric used in real estate and property management to assess a property's ability to generate enough income to cover its debt obligations. The Debt Coverage Rate is calculated by dividing the property's gross operating income by its total debt service (the total amount of money required to service the debt, including both principal and interest payments). A Debt Coverage Rate greater than 1 indicates that the property generates sufficient income to meet its debt obligations, which is a positive sign for lenders and investors. A DCR below 1 suggests that the property does not generate enough income to cover its debt payments, which could signal financial distress or increased risk. The context of the other options highlights that they do not accurately represent DCR. The Debt Capital Ratio is often related to equity financing rather than operating income, the Direct Cost Ratio typically refers to the relationship of direct costs to total costs in various budgeting contexts, and the Debt Compliance Requirement does not convey the measure of income versus debt service illustrated by the Debt Coverage Rate. Thus, the focus and application of the DCR firmly establish its importance in evaluating financial health in property management.