Question

In determining a property's before-tax cash flow from operations (BTCF) and net operating income (NOI), it is important to understand how each accounts for the use of financial leverage in its calculation. Which of the following statements is true in regards to how these two measures account for the use of financial leverage?

Answer 1

Leveraged cash flow is BTCF, whereas unlevered cash flow is NOI. In accounting, financial leverage refers to borrowing money to acquire more assets.

When all operational costs and mortgage payments for all loans secured by the property under consideration are taken into account, before-tax cash flow (BTCF), an important property investment analysis statistic, indicates the cash flow that the investor receives.

In accounting, financial leverage refers to borrowing money to acquire more assets. The danger of failure rises when financial leverage is used excessively. Leverage is employed to boost return on equity.

In this instance, the statement that "BTCF is a levered cash flow, while NOI is an unlevered cash flow" is valid in respect to how before-tax cash flow from operations (BTCF) and net operating income (NOI) account for the usage of financial leverage.

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