A developer wants to finance a project costing $2.35 million with a 70 percent, 20-year loan at an interest rate of 4.5 percent. The project's Nol is expected to be $151,000 during year 1 and the NOI, as well as its value, is expected to increase at an annual rate of 2 percent thereafter. The lender will require an initial debt coverage ratio of at least 1.20. Required: a-1. Would the lender be likely to make the loan to the developer? a-2. Support your answer with a cash flow statement for a five-year period. a-3. What would be the developer's before-tax yield on equity (BTIRR)? b. What would be the maximum loan amount that the lender would make if the debt coverage ratio was 1.20 for year 1? What would be the loan-to-value ratio? c. Assuming conditions in part (a), suppose that mortgage interest rates suddenly increase from 4.5 percent to 6.5 percent. NOI and value will now increase at a rate of 5 percent. C-1. If the desired DCR is 1.20, will the lender be as willing to make a conventional loan now? c-2. Support your answer with a cash flow statement. Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required A3 Required B Required C1 Required C2 Would the lender be likely to make the loan to the developer? Would the lender be likely to make the loan to the developer? Yes Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required A3 Required B Required c1 Required C2 What would be the developer's before-tax yield on equity (BTIRR)? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) BTIRR on Equity % Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required A3 Required B Required c1 Required C2 Assuming conditions in part (a), suppose that mortgage interest rates suddenly increase from 4.5 percent to 6.5 percent. NOI and value will now increase at a rate of 5 percent. If the desired DCR is 1.20, will the lender be as willing to make a conventional loan now? Will the lender be as willing to make a conventional loan now? Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required A3 Required B Required C1 Required C2 Support your answer with a cash flow statement. (Do not round intermediate calculations. Round "DCR" to 2 decimal places. Enter your dollar answers in dollars not in millions.) Year 1 Year 2 Year 3 Year 4 Year 5 NOI Debt service BTCF DCR Cash flow from sale in year 5 Sales price Sales costs Mortgage balance Before-tax cash flow Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required A3 Required B Required c1 Required C2 What would be the developer's before-tax yield on equity (BTIRR)? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) BTIRR on Equity % Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required A3 Required B Required c1 Required C2 Assuming conditions in part (a), suppose that mortgage interest rates suddenly increase from 4.5 percent to 6.5 percent. NOI and value will now increase at a rate of 5 percent. If the desired DCR is 1.20, will the lender be as willing to make a conventional loan now? Will the lender be as willing to make a conventional loan now? Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required A3 Required B Required C1 Required C2 Support your answer with a cash flow statement. (Do not round intermediate calculations. Round "DCR" to 2 decimal places. Enter your dollar answers in dollars not in millions.) Year 1 Year 2 Year 3 Year 4 Year 5 NOI Debt service BTCF DCR Cash flow from sale in year 5 Sales price Sales costs Mortgage balance Before-tax cash flow
