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A borrower wants to finance an apartment building costing $2 million with a 75%, 25 year loan at the interest rate of 6%. The projects’ NOI is expected to be $150,000 during first year. Assuming that NOI and the building will increase 5% each year. The lender will require an initial debt coverage ratio of at least 1.25.
a. Would the lender be likely to make the loan to the borrow? Show your cash flow statement for a 3-year period. What would be the borrower’s before-tax yield on equity?
b. Would the lender be likely to make the loan to the borrower if the mortgage rate is 8%?
c. What would be the maximum loan amount that the lender would make if the debt coverage ratio was 1.2 for year 1? What would be the loan-to-value ratio?
Gordon Powles works for Creighton Capital Management and manages endowments and trusts for large clients. The fund invests most of its portfolio in S&P 500 stocks, keeping some cash to facilitate purchases and withdrawals. A colleague of Powles, Mari..
Chatterton Company has obtained a $75,000 short-term loan from the bank with the understanding that Chatterton will repay the loan in two equal monthly instalments of $38,250 each. The first instalment is due after 30 days, and the second after 60 da..
If a loan of $5,750 is taken out at a simple interest of 5.25% for a year and a half, how much interest will the borrower pay?
Olympic Sports has two issues of debt outstanding. One is a 9% coupon bond with a face value of $29 million, a maturity of 10 years, and a yield to maturity of 10%. The coupons are paid annually. What is before tax cost of debt for Olympic?
The options mature on June 19, the current July corn futures price is 278.25, and the risk-free interest rate is 1.1%. - Calculate implied volatilities for the options using DerivaGem.
As a savings plan to ensure your child's college education, a couple decides to deposit $ 100 a month into a bank account that pays interest at a rate of 6% per year compounded monthly. If the savings plan started when the child was 6 years old, how ..
DeCento's is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 12 percent rate of return and uses straight-line depreciation to a ze..
Southern Healthcare and BestWell are for-profit HMOs that operate in Florida and Georgia. Currently, both are identical in every respect except that Southern is unleveraged while BestWell has $10 million of 5 percent bonds. Both HMOs report an EBIT o..
You have an 8 percent, $1,000 par bond that matures in 3 years. If the bond’s yield to maturity is 10 percent, Calculate this bond’s modified duration. Suppose the YTM goes down from 10 percent to 9.5 percent, calculate an estimate of the price chang..
Zeniba Inc.’s stock is currently selling for $23.56 per share. The company just paid a dividend = $2.00 per share (i.e., D0 = $2.00), and investors expect the dividend to grow at a constant rate out into the future. Investors require a minimum annual..
Sqeekers Co. issued 10-year bonds a year ago at a coupon rate of 7.6 percent. The bonds make semi annual payments and have a par value of $1,000. If the YTM on these bonds is 5.9 percent, what is the current bond price? (Do not round intermediate cal..
Consider that you are purchasing an asset that you can either declare as an expense immediately in the first year for its full value or you can depreciate with 3-year MACRS (depreciation rates: 33.33%, 44.45%, 14.81%, and 7.41%). Then, from a purely ..
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