You are considering purchasing an office building for $2,500,000. You expect the potential gross income (PGI) to be $450,000 in the first year; vacancy and collection losses to be 9% of PGI; and operating and capital expenses to be $42% of the effective gross income (EGI). You will finance the acquisition with 25% equity and 75% debt. The annual interest rate on debt is 5.5%. Payments will be made on a MONTHLY basis on a 25-year amortization schedule. What is the expected debt coverage ratio in year 1 of operations?

***Please thoroughly explain each step in solving.

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