Consider a $700,000 property that generates a net operating income (NOI) of $40,000.

a. Now suppose you take a loan of 75% with 4% interest. Whats you capitalization rate, ? (5 points)

b. Now on top of the loan in (a), suppose you have the option to acquire another loan (mezzanine financing), that is 75% of the remaining equity after the first loan, with 8% interest. What would be your capitalization rate now?

c. Based on your findings above, would you acquire the second loan? Why?