You are evaluating a property with the following characteristics: Total Property Value: $2,000,000 Building value: $1,600,000 (included as part of total property value) The building will be depreciated on a straight-line basis over a 27.5 year period. Year 1 NOI: $200,000 Annual increase planned in NOI: 3% Annual increase assumed in total property value: 2% Property will be financed with a Loan to value ratio of 70% Interest rate on the loan will be 8% Payments will be made monthly The loan period is for 15 years The holding period, however, is assumed to be 5 years, at the end of which the property will be sold. The appropriate tax rate is 28% for all taxes The lender will participate at the rate of 40% of all NOI in excess of $200,000 The lender will also participate at the rate of 35% of the gain on the sale of the property.

1. What are the BTIRRE and ATIRRE ? (A) 18.03% and 13.72% (B) 17.74% and 13.49% (C) 19.40% and 14.70% (D) 16.89% and 12.76%

2. Would this structure loan permit a debt coverage ratio (DCR) of at least 1.2? (A) Yes (B) No

3. Based on your review of the output of the model, what is your opinion as to what impact there is due to leverage? (A) Positive leverage (B) Negative leverage (C) No impact of leverage

4. Would the lender prefer this loan arrangement over a conventional loan with a rate of 9.0%? (A) Definitely yes (B) Definitely no (C) Perhaps, depending upon how certain the lender is about the assumptions behind the proposal and also her need to adhere to a required debt coverage ratio of 1.2.