Discuss the chances of loan approval for this investment

Reference no: EM133611597

Assignment:

Consider the following information for the first year of a proposed commercial 1 property acquisition: effective gross income is estimated to be $1.8 million; total 1 outgoings are $490,000; the investor has a 35% marginal tax rate. The asking price is $12.5 million. The property is going to be acquired with a 75% loan to value ratio mortgage, interest-only with a 10-year term and 6% pa. interest rate. Depreciation is straight-line over 39 years. It is estimated that the depreciation expense is $320,000 in year 1.

i. What is the net income of the property in Year 1?

ii. Using an appropriate financial ratio, discuss the chances of loan approval for this investment.

iii. Determine the ?rst-year equity after-tax cash flow (EATCF) if there are no 1 capital improvement expenditures or reversion items in Year 1.

Reference no: EM133611597

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