Ann is looking to buy an office building in 2014. She plans to rent it out for 5 years (2015-2019) and sell it at the end of 2019.

(2) Fill in the second sheet (titled underwriting).

Where it says Income Test, compute the biggest mortgage payment Ann can make given her NOI in 2015 computed above. Note: NOI/PMT 1.20, which implies the maximum PMT=NOI/1.20. This is the debt service coverage test.

(2.a) What is the biggest mortgage payment the bank will allow Ann to make given her expected NOI in 2015? Using the maximum payment, compute the maximum loan Ann can get. Recall for an IO loan: PMT=(interest rate)(Loan Balance) The interest rate is given in the spreadsheet. Use the PMT computed in (2.a)

(2.b) What is the maximum loan amount corresponding to a DSCR of 1.2?

(2.c) What is the biggest loan Ann can get assuming 90% maximum LTV?

(2.d) Assume for the rest of the question that Ann will Borrow the maximum available loan amount. What is the loan that Ann borrows to buy the property?

(2.e) What will Anns annual debt service payment be?