Before-tax cash flow as percentage of equity investment

Assignment Help Financial Management

Reference no: EM131955666

A property that can be purchased for $1.7 million has an expected first-year net operating income of $190,000. An investor is considering two loan alternatives:

LOAN A: a 70% loan-to-value ratio, with interest at 7.5% per annum; the loan will require level monthly payments to amortize the principal over 20 years.

LOAN B: an 80% loan-to-value ratio, with interest at 8% per annum; this loan will require level monthly payments to amortize the principal over 25 years.

For each loan, determine:

1) The expected before-tax cash flow (NOI - annual debt service) as a percentage of the equity investment

2) The actual before-tax cash flow as a percentage of the equity investment, if the actual net operating income falls 10% below expectations

3) The percentage by which actual net operating income can fall below expectations before it is just sufficient to provide for annual debt service

Show all work as well as the formulas you used.

Reference no: EM131955666

Questions Cloud

What is the expected currency rate : A chemical manufacturer is setting up capacity in Europe and North America for the next three years. Annual demand in each market is 2 million kilograms.

Discuss about the mobile technologies and commerce : Reflect on how your topic relates to larger issues; evaluate the concepts you have presented; issue a call for action on the part of your audience;

What is the annual carrying costs of cheese inventory : Cheeseburger and Taco Company purchases 18,029 boxes of cheese each year. It costs $18 to place and ship each order and $4.00 per year for each box held.

The break-even quantity for the number of pupils : the break-even quantity for the number of pupils needed to enroll in the swimming class.

Before-tax cash flow as percentage of equity investment : The actual before-tax cash flow as a percentage of the equity investment, if the actual net operating income falls 10% below expectations

Do you believe that thinking profit can actually result : Question - Do you believe that thinking profit can actually result in more profit? Make sure to support your answer. Please answer the question completely

Determine bad debt expense to the allowance method : Castle Company provides estimates for its uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $17,880 at the beginning.

Invest annually in real dollars to meet retirement goal : Calculate the amount you must invest annually in real dollars to meet your retirement goal.

What was the return on marketing expenditures : What was the return on Marketing Expenditures (gross profit as a function of marketing costs?) What was the breakeven for this capaign?

User Account

All Pages