Which sequence represents the correct order of cash distribution in a cash flow waterfall?

The correct sequence for cash distribution in a cash flow waterfall is accurately represented by the choice that lists NOI (Net Operating Income) first, followed by CapEx (Capital Expenditures), then Debt Service, and finally Net Cash Flow to Equity.

This order is based on the financial priorities typically observed in real estate financing. First, the Net Operating Income is calculated, which reflects the revenue generated from the property after operating expenses but before any financing costs. Following this, Capital Expenditures are addressed, as these are necessary for maintaining or improving the property and directly impacting its overall value.

Next, Debt Service comes into play, which includes the principal and interest payments on any financing used for the property. These obligations must be met to maintain the property's financial health and creditworthiness.

Finally, after all operational, maintenance, and debt obligations have been satisfied, any remaining cash flow can be distributed to equity holders. This reflects the residual cash that is available to investors after all operational expenses, required investments for property upkeep, and debt obligations have been met, marking it as a reward for their investment and risk. This waterfall structure ensures that all essential costs are prioritized before disbursing profits to equity holders.