You are considering the purchase of an industrial warehouse.

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You are considering the purchase of an industrial warehouse. The
purchase price is $1 million. You expect to hold the property for five
years. You have decided to finance the acquisition with the $700,000
loan, 10 percent interest rate, 30year term, and annual interest-only
payments. (That is, the annual payment will not include any amortization
of principal.) There are no up-front financing costs. You estimate the
following cash flows for the first year of operations:
$135,000 Effective gross income 27,000 Operating expenses
$108,000 NOI
Calculate the overall rate of return (or “cap rate”).
Calculate the debt coverage ratio.
What
is the largest loan that you can obtain (holding the other terms
constant) if the lender requires a debt service coverage ratio of at
least 1.2?

    • 8 years ago
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