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You are considering the purchase of an apartment complex. The following assumptions are made: The purchase price is $1,000,000. Potential gross income (PGI) for the
You are considering the purchase of an apartment complex. The following assumptions are made:
- The purchase price is $1,000,000.
- Potential gross income (PGI) for the first year of operations is projected to be $171,000.
- PGI is expected to increase at 4 percent per year.
- No vacancies are expected.
- Operating expenses are estimated at 35 percent of effective gross income. Ignore capital expenditures.
- The market value of the investment is expected to increase 4 percent per year.
- Selling expenses will be 4 percent.
- The holding period is 4 years.
- The appropriate unlevered rate of return to discount projected NOIs and the projected NSP is 12 percent.
- The required levered rate of return is 14 percent.
- 70 percent of the acquisition price can be borrowed with a 30-year, monthly payment mortgage.
- The annual interest rate on the mortgage will be 8.0 percent.
- Financing costs will equal 2 percent of the loan amount.
- There are no prepayment penalties.
- What is the DCR?
Group of answer choices 1.9, 1.8, 2.0, or 1.6?
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