Question 2 of the pdf

RE 3010 – Real Estate Principles Assignment # 4 Due: Apr 1 8 (Wed ) at 11:59 pm on iCollege Question 1 You are considering the purchase of a shopping center for $5.5 million . The center’s first year NOI is estimated to be $489,500. You borrow $4 million and your annual mortgage payment is $411,063.28. a) Calculate: cap rate, equity dividend rate, net income multiplier, debt coverage ratio, debt yield ratio b) If your bank requires a minimum debt coverage ratio of 1. 3, what is the maximum annual mortgage payment you ca n afford ? Answers: a) Cap rate = 489,500/5.5 mil = 8.9% Equity dividend rate = (489,500 – 411,063.28)/1.5mil = 5.2% Net income multiplier = 5.5mil/489,500 = 11.2 Debt coverage ratio = 1.19 Debt yield ratio = 489,500/4mil = 12.2% b) Maximum mortgage payment = 48 9,500/1.3 = $376,538 Question 2 You are considering the purchase of an apartment complex. • Purchase price: $775,000 • BTCF: Year NOI 1 $103,085 2 $108,361 3 $113,875 4 $119,636 5 $125,651 • Holding period is four years • Cap rate is expected to be 7% in year 4 • Selling expenses will be 5% of the sale price • The 4 -year Treasury bill rate is 3% and your risk premium for this project is 8% a) Calculate the NPV of this project assuming that you do not take any mortgages b) You take a $620,000 mortgage. Your annua l debt payment is $54,593. The outstanding loan balance at the end of year 4 is $596,558. Calculate the NPV of this project.