2. you are considering the purchase of a duplex. Effective gross income (EGI) during the first year of operations is expected to be $33,600 ($1,400 per month per unit). First-year operating expenses are expected to be $13,440 (40% of EGI). Ignore capital expenditures. The purchase price of the duplex is $200,000. If you purchase the duplex, you are planning to put $60,000 down (equity) and finance the remaining $140,000. The $140,000 will be in the form of a standard fixed-rate mortgage, with an 8 percent interest rate and a term of 30 years. Assume that payments will be made annually and there are no up-front financing costs.

a. What is the overall capitalization rate?

b. What is the effective gross income multiplier?

c. What is the equity dividend rate (the before-tax return on equity)?

d. What is the debt coverage ratio?

e. Assume the lender requires a minimum debt coverage ratio of 1.2. What is the largest loan that you could obtain if you decide you want to borrow more than $140,000?

Show your work.