1. Consider the following. A group of 4 Real Estate graduates decide to pool their funds and purchase a local strip mall. They were able to win the bidding with an offer of $4,000,000.00. The property has a Net Operating Income of $400,000.00 before taxes and interest. What is the capitalization rate for the subject property? (2 points) 2. Prior to the purchase the graduates were able to discuss with their commercial mortgage broker the potential for borrowing funds against the property. They were informed that major lenders would allow a loan to value ratio of 60%. How much could the investors borrow against the property? (2 points) 3. The mortgage broker informed the Graduates that the major lenders would be willing to lend funds at 8% compounded annually. These would be interest only mortgages with a term of 10 years. The lender will not allow a debt coverage ration of less then 1.20. The lender required a debt yield ration of at least 10%. a. How much is the annual interest cost? (1 point) b. Are the lenders requirements for debt yield ratio satisfied? (2 points) c. Are the lenders requirements for debt coverage ratio satisfied? (2 points) 4. The Graduates moved forward with their purchase and loan from a major lender. They have stabilized the cash flow and have maintained the net operating income from above. They have reached out to a mezzanine lender to inquire about secondary borrowing on the property. This lender would be willing to lend $800,000.00 and charge 12% interest compounded annually with a term of 10 years. a. What is the return on the investors current equity in the subject property with only the initial borrowing of 60% loan to value? (2 points) b. After this additional borrowing what is the total interest annually? (1 point) c. What is the weighted average cost of debt? (2 points) d. What is the return on investor equity in the subject property if they proceed with the mezzanine lending? (2 points)