Spreadsheet Problem. Refer to the Ch10_Mort Eq Cap tab in the Excel Workbook provided on the Web site. This replicates the example discussed on page 314 of the book.

a. Suppose there is an aggressive lender that is willing to allow the debt coverage ratio (DCR) to be as low as 1.0. Keep all other assumptions, including the loan interest rate and equity discount rate (before-tax equity yield), the same. How does this affect the amount that can be borrowed and the property value?

b. Refer to part (a). Is it reasonable to assume that the loan interest rate and equity discount rate would be the same? If not, would you expect each to be higher or lower? Why?