A developer has put together a business plan to construct a retail structure with the following Pro Forma information:

Adjusted Gross Income, Annual: $540,000

Estimated Expenses, Annual: $172,000

Planned Rate of Return: 13%

The developer is looking to obtain a long-term loan from a bank to cover the construction of the retail structure. After assessing the developers credit worthiness, the bank assigns the developer an interest rate of 8.0%. The bank will limit the loan at a ratio 75%, Loan Value to Economic Value.

Please build a spreadsheet (similar to the model on page 202) and answer the following questions:

What is the computed Cap Rate that will be used in computations of the Economic (Capitalization) Value ?

What is the Economic (Capitalization) Value of the Project ?

What is the maximum loan value the bank will be willing to lend based on all of these factors ?