You have purchased a building for $12,000,000. There are ongoing NNN leases that will create a constant annual PGI of 1,700,000 with a Vacancy and Collection loss of 10%. Operating Expenses will be constant at 575,000 per year, and Capital Expenditures a constant 120,000 per year. You have obtained a 5-year, 4.5% partially amortizing loan at 65%LTV with 1.5 points that has a 25-year amortization period. You expect to sell this building for a net of $14,500,000 (i.e. after selling expense are paid) five years from today. Question a) What is your before tax cash flow from selling this building and IRR this investment? Question b)For a 14% equity hurdle rate, what is the before tax NPV of this investment? Question c)If your lender was satisfied with a 1.5 Debt Coverage Ratio (regardless of LTV), what is the maximum loan amount you could have obtained?
You have purchased a building for $12,000,000. There are ongoing NNN leases that will create a constant annual PGI of 1,700,000 with a Vacancy and Collection loss of 10%. Operating Expenses will be constant at 575,000 per year, and Capital Expenditures a constant 120,000 per year. You have obtained a 5-year, 4.5% partially amortizing loan at 65%LTV with 1.5 points that has a 25-year amortization period. You expect to sell this building for a net of $14,500,000 (i.e. after selling expense are paid) five years from today. Question a) What is your before tax cash flow from selling this building and IRR this investment? Question b)For a 14% equity hurdle rate, what is the before tax NPV of this investment? Question c)If your lender was satisfied with a 1.5 Debt Coverage Ratio (regardless of LTV), what is the maximum loan amount you could have obtained?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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You have purchased a building for $12,000,000. There are ongoing NNN leases that will create a constant annual PGI of 1,700,000 with a Vacancy and Collection loss of 10%. Operating Expenses will be constant at 575,000 per year, and Capital Expenditures a constant 120,000 per year. You have obtained a 5-year, 4.5% partially amortizing loan at 65%LTV with 1.5 points that has a 25-year amortization period. You expect to sell this building for a net of $14,500,000 (i.e. after selling expense are paid) five years from today.
Question a) What is your before tax cash flow from selling this building and
Question b)For a 14% equity hurdle rate, what is the before tax NPV of this investment?
Question c)If your lender was satisfied with a 1.5 Debt Coverage Ratio (regardless of LTV), what is the maximum loan amount you could have obtained?
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