In the summer of 07, Bert Matthews was contemplating the purchase of a 48-unit apartment building in Nashville

The building was 95% occupied and generated $500K in CF

Investors were expecting a 15% return and the bank had offered to lend him 80% of the purchase price at 5.5%

1.What is his weighted average cost of capital?

2.How much could he afford to pay for the property?

3.Around that time, market conditions were starting to quickly deterioratelending standards were starting to tighten, rates were going up, occupancy would likely fall

4.How would this affect the cost of capital? How about the value of the property?