Treetop Associated Group (TAG) is seeking financing for acquisition and development of

147 homesites. The land will cost $1.5 million, and TAG estimates direct development costs to

be an additional $2.7 million. City Federal Bank will make a loan covering 40 percent of the

land acquisition cost, 100 percent of direct improvement cost, and interest carry at 11 percent

interest with a 3 percent loan origination fee.

TAG has decided to split the development into two parcel types, standard and deluxe, with

the standard parcels comprising 87 of the 147 total homesites. Also, TAG thinks that the deluxe

sites will be priced at a $2,000 premium over the standard parcel price of $36,000. Total project

revenue will be $5,412,000. After making a 60 percent down payment for the land and incurring

closing costs of $50,000, TAG believes that the remaining development costs will be drawn

down at $600,000 a month for the first three months and $300,000 a month for the next three

months. Parcel sales are expected to begin during the fourth month after closing. TAG estimates

that they will sell three standard parcels and four deluxe parcels a month for the remainder of

the first year, and five standard parcels and two deluxe parcels per month for the second year.

The company and the bank have agreed to a repayment schedule calling for the loan to be

repaid at a rate 20 percent faster than the receipt of sales revenues; that is, the loan plus interest

carry per parcel will be repaid when approximately 83.33 percent of all revenues are realized.

Other costs to consider include sales expense (paid quarterly at a rate of 5% on parcels sold

during the quarter), administrative costs of $7,500 per quarter, and property taxes of $19,000 at

the end of each year.

Question ?

What will total project costs be? What percentage of total project costs are being financed?