A property was purchased by an investor. The property is expected to produce $120,000 of annual net operating income in year 1; increasing $10,000 every year thereafter. The owner intends to sell the property at the end of year 5.

a. Assuming the bank requires a 1.2 debt coverage service ratio based on the expected first year NOI, what is the maximum monthly mortgage payment?

b. Assuming the mortgage has a 6% annual interest rate, amortizes over 30 years, with monthly payments. What is the principal amount of mortgage? (Note, you will need to use the information above to identify the I, N and PMT in order to solve for PV.)

c. Based on the above scenario, what is the expected NOI for purposes of computing the value of the asset at the time of sale?

d. What is the value of the asset assuming the property will sell at a terminal (exit) cap rate of 5%?