What is the first-year debt coverage ratio

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You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,250,000; rents are estimated at $160,000 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 8 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold.

Required:

a. What is the first-year debt coverage ratio?

b. What is the terminal capitalization rate?

c. What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)?

d. What is the NPV using a 14 percent discount rate?

e. What is the profitability index using a 14 percent discount rate?

Reference no: EM133060703

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