Which metric can tell the entire story of a potential transaction?

• A. Yield-on-Cost
• B. Net present value
• C. Equity multiple
• D. Debt service coverage ratio

Answer: (A)

Yield on cost captures the relationship between what you invest in a project and the income it’s expected to generate once it’s finished. By tying total project cost directly to stabilized income (NOI or cash flow), it gives a single percentage that communicates the deal’s profitability relative to the full investment. If this yield meets or exceeds a required target, the transaction tells a clear, favorable story about economics, cost control, and potential upside on exit. It’s especially useful for comparing development or value-add opportunities on a like-for-like cost basis, because it folds together both what you’re spending and what the project is expected to produce.

Net present value requires discount rates and exact timing of cash flows, so it’s highly sensitive to assumptions and doesn’t always yield a quick, comparable takeaway across deals. The equity multiple shows total cash returned relative to equity but ignores the timing of those cash flows, which can distort the perceived attractiveness. The debt service coverage ratio focuses solely on debt repayment capacity, not the overall profitability or required return of the entire project.