Shopping for Loans Part II$.$ You$$re trying to obtain financing for an office building you$$re purchasing. The lender has agreed to originate a loan which carries a $6\mathrm{.}75\%$ interest rate, a $30-$year amortization, and calls for annual $($not monthly$)$ payments. The lender isn$$t concerned about either the Loan$-$to$-$Value or the Loan$-$to$-$Cost ratios, but they insist on a minimum Debt Service Coverage Ratio of $1\mathrm{.}25.$ The office building$$s stabilized net operating income is $$240,000$ per year and your initial request is for a $$2\mathrm{.}6$ million loan. Note: When calculating Loan Constants, please round to FOUR digits $($ex: $$0\mathrm{.}1234).$

Q$4($a$).$ Looking only at the Debt Service Coverage Ratio requirement, will the lender approve your proposed $$2\mathrm{.}6$ million loan? Explain your reasoning and show your work.

Q$4($b$).$ What is the maximum loan size which would still satisfy the lender$$s Debt Service Coverage Ratio restriction? Explain your reasoning and show your work.

Q$4($c$).$ Your business partner finds another bank which seems to be offering a better deal: the loan carries a $($much lower$)6\mathrm{.}00\%$ interest rate, a $15$ year amortization schedule, and the bank requires a $1\mathrm{.}30$ minimum Debt Service Coverage Ratio you found. $$It$$s a no$-$brainer,$$ he says, $$We should take it$.$ Why might the loan with the lower interest rate turn out to be less desirable than the loan you reviewed in Q$4($b$)?$ Support your answer with an analysis of how much more or less equity you would have to bring to the deal. Show your work.