How much equity does kuehner need to put into the project

Assignment Help Financial Management

Reference no: EM132039768

The CEO of Kuehner Development Company has just come from a meeting with his marketing staff where he was given the latest market study of a proposed new shopping center. The study calls for a construction phase of 1 year, and a subsequent operation phase. This question focuses largely on the construction phase.

The marketing staff has chosen a 12-acre site for the project that they believe they can acquire for $2.25 million. The initial studies indicate that this shopping center will have gross building area (GBA) of 190,000 sq. ft.

The head of the construction division assures the CEO that hard costs will be kept to $54 per sq ft. of GBA, and soft costs (excluding interest carry and loan fees) will be kept to $4.50 per square foot of GBA. Site improvements will cost $750,000.

The Shawmut Bank has agreed to provide construction financing for the project. The bank will finance the construction costs (hard and soft) and the site improvements at an annual rate of 13%. They will also charge a loan-commitment fee of 2% of the total balance.

The construction division estimates that 60 percent of the financed construction costs will be taken down evenly during the first six months of the construction project. The remaining 40 percent will be taken down evenly during the last six months.

a. What are the total construction costs that the bank is willing to finance?

b. Given the terms of the construction loan, what will be the total interest carry for the shopping center project?

c. What will be the total amount that Kuehner must borrow (Hint: remember to include interest carry)?

d. How much equity does Kuehner need to put into the project?

e. Acme Insurance Co. agrees to provide permanent financing for the project and “take-out” the construction loan at the end of 1 year. They agree to provide a fully amortizing mortgage with a 20 year maturity at a 12 percent annual interest rate. What is the monthly debt service that Kuehner will have to make once construction is complete and operations begin?

Reference no: EM132039768

Questions Cloud

Analyzing documents for correctness and a readable style : The goal of this activity is your learning to use an online tool for analyzing documents for correctness and a readable style. The style we're practicing.

Proposed nuclear power plant : A proposed nuclear power plant will cost $2.5 billion to build and then will produce cash flows of $330 million a year for 15 years.

What are the two basic kinds of epidemiological studies : What are the two basic kinds of epidemiological studies? What are three kinds of information that epidemiology can tell us about diseases

Write a paper about a contemporary leadership situation : Write a three to four page paper (not including the title and reference pages) about a contemporary leadership situation that is familiar to you.

How much equity does kuehner need to put into the project : What are the total construction costs that the bank is willing to finance? How much equity does Kuehner need to put into the project?

Discuss the issue of cultural diversity : Note that the protest produced a great deal of news, overshadowing the regents meeting. The issue of cultural diversity was not resolved as had been expected.

Explain four recommendations to the university : The Committee upheld the University's decision to terminate the four professors based on allegations of sexual harassment.

Potential actionable recommendations for each of the element : Outlining in turn two generalized examples of potential actionable recommendations for each of the elements.

How much does maxwell expect his minimum revenue : How much does Maxwell expect his minimum revenue to be for 2016?

User Account

All Pages