What would be the developers before tax yield on equity

Assignment Help Financial Management

Reference no: EM131326739

A developer wants to finance a project costing $1.5 million with a 70 percent, 25-year loan at an interest rate of 8 percent. The project's NOI is expected to be $120,000 during year 1 and the NOI, as well as its value, is expected to increase at an annual rate of 3 percent thereafter. The lender will require an initial debt coverage ratio of at least 1.20.

a. Would the lender be likely to make the loan to the developer? Support your answer with a cash flow statement for a five-year period. What would be the developer's before-tax yield on equity (BTIRR)?

b. Based on the projection in (a), what would be the maximum loan amount that the lender would make if the debt coverage ratio was 1.15 for year 1? What would be the loan-to-value ratio?

c. Assuming conditions in part (a), suppose that mortgage interest rates suddenly increase from 8 percent to 10 percent. NOI and value will now increase at a rate of 5 percent. If the desired DCR is 1.20, will the lender be as willing to make a conventional loan now? Support your answer with a cash flow statement.

Reference no: EM131326739

Questions Cloud

Discuss article-a kid was teased for wearing fila shoes : Oral Presentation and Written Analysis. You are required to do a six-to-eight-minute oral presentation. The presentation will involve analysis of a short video (the video should not be more than half of your presentation). Each person will pre..

What is the marginal cost of the 80 percent loan : What is the marginal cost of the 80 percent loan? What does this mean?- Does each loan offer favorable financial leverage? Which would you recommend?

What do you think you have learned from the given activity : Share what you find with the class on the discussion board. What do you think you have learned from this activity? What have you learned about monopolistic competition?

What would the beir be on such a project : Compute the BTIRR and ATIRR after five years, taking into account the equity participation.- What would the BEIR be on such a project?

What would be the developers before tax yield on equity : Would the lender be likely to make the loan to the developer? Support your answer with a cash flow statement for a five-year period. What would be the developer's before-tax yield on equity (BTIRR)?

Did the giver stop for a moment of silence : Did the giver encourage repeat performance? Did the giver of praise touch the receiver (optional)?

What will balloon payment be at the end of the fifth year : What will the balloon payment be at the end of the fifth year?- If the property value does not change, what will the loan-to-value ratio be at the end of the five-year period?

How are the differences reflected in the financial statement : Identify 4 main (the big) differences between fund accounting and proprietary accounting. How are the 4 main differences (refer to question 19) reflected in the fund verses the government financial statements and why?

What does it mean to set alpha at .05 : What does it mean to set alpha at .05?What is your null hypothesis? Alternate hypothesis?Is this a one-tailed or two-tailed hypothesis?Calculate the obtained z. Do you reject or fail to reject the null hypothesis?

User Account

All Pages