1. An investment opportunity having a market price of $1,000,000.00 is available. You could obtain a $750,000.00, 25-year mortgage loan requiring equal monthly payments with an interest at 7.0%. The following operating results are expected during the first year: Effective gross income of $200,000.00, operating expenses and CAPEX of $100,000.00, and NOI of $100,000.00.

1. What is the gross income multiplier?

2. What is the operating expense ratio?

3. What is monthly and annual mortgage payment?

4. What is the debt coverage ratio?

5. What is the debt yield ratio?

6. What is the CAP rate?

7. What is the equity dividend rate?

8. Assume the lender requires a minimum debt coverage ratio of 1.8. What is the largest loan that you could obtain?

2. You buy a hotel today for $15 Million. The capital stack is as follows: $5 Million is equity (cash out) and the remaining $10 Million is debt. You expect your NOI for year 3 to be $1,400,000.00. Assume the going Cap Rate for hotels in year 3 is 7%, what is the expected sale price of the hotel at end of year 3? The $10 Million dollar loan you secured, is a 30 year fully amortizing loan at 5% fixed. Given year 1 cash flow of $500,000.00, year 2 cash flow of $625,000.00, and year 3 cash flows of $750,000.00 and profit realized from the sale of the asset at the end of year 3, calculate the IRR for this project.

3. For the above problem, find the IRR assuming no debt is employed (the deal is all cash). Why is the IRR different from the above problem? Explain.