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You are considering purchasing a small office building for $ 2 , 5 0 0 , 0 0 0 . You expect the potential gross

You are considering purchasing a small office building for $2,500,000. You
expect the potential gross income (PG) in the first year to be $450,000;
vacancy and collection losses to be 9 percent of PGl; and operating
expenses and capital expenditures to be 42 percent of effective gross
income (EG). You will finance the acquisition with 25 percent equity and 75
percent debt. The annual interest rate on the debt financing will be 5.5
percent. Payment will be made monthly based on a 25-year amortization
schedule.
Required:
a. What is the implied first year overall capitalization rate?
b. What is the expected debt coverage ratio in year 1 of operations?
c. If the lender requires the DCR to be 1.25 or greater, what is the
maximum loan amount the lender will provide?
d. What is the debt yield ratio?
Complete this question by entering your answers in the tabs below.
Required A
If the lender requires the DCR to be 1.25 or greater, what is the maximum loan :
Note: Round your final answer to nearest whole dollar amount.
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