A lender has outlined key terms for a 4-year annuity balloon mortgage at a fixed interest rate including the credit margin of 5.50%, with a maximum loan-to-value (LTV) ratio of 55% amortised over 20 years. The property is in a good but not prime location. It is fully leased to a range of mainly good credit rated tenants. Leases have between 3 years and 7 years remaining and all have internal repairing only clauses with annual escalation to CPI. Year 0 Year 1 Year 2 Year 3 Year 4 Market Value -25.000 Transaction costs @ 6.80% -1.700 Purchase cost -26.700 Net Income Capex @ 10.00% Sale incl'g costs 2.250 2.340 2.434 2.531 -0.225 -0.234 -0.243 -0.253 29.246 Net Cash Flows Figures shown in £millions. -26.700 2.025 2.106 2.190 31.524 Set out the line by line After Debt Cash Flow, based on the details above and whatever further reasonable and fully justified assumptions you feel are necessary. The borrower only invests in property that can achieve an after debt annual return of 14.00% or above and an average forecasted cash-on-cash of 7.50%. Show your detailed calculations and comment on whether this project is capable of meeting these criteria?
A lender has outlined key terms for a 4-year annuity balloon mortgage at a fixed interest rate including the credit margin of 5.50%, with a maximum loan-to-value (LTV) ratio of 55% amortised over 20 years. The property is in a good but not prime location. It is fully leased to a range of mainly good credit rated tenants. Leases have between 3 years and 7 years remaining and all have internal repairing only clauses with annual escalation to CPI. Year 0 Year 1 Year 2 Year 3 Year 4 Market Value -25.000 Transaction costs @ 6.80% -1.700 Purchase cost -26.700 Net Income Capex @ 10.00% Sale incl'g costs 2.250 2.340 2.434 2.531 -0.225 -0.234 -0.243 -0.253 29.246 Net Cash Flows Figures shown in £millions. -26.700 2.025 2.106 2.190 31.524 Set out the line by line After Debt Cash Flow, based on the details above and whatever further reasonable and fully justified assumptions you feel are necessary. The borrower only invests in property that can achieve an after debt annual return of 14.00% or above and an average forecasted cash-on-cash of 7.50%. Show your detailed calculations and comment on whether this project is capable of meeting these criteria?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Concept explainers
Question
Transcribed Image Text:A lender has outlined key terms for a 4-year annuity balloon mortgage at a fixed
interest rate including the credit margin of 5.50%, with a maximum loan-to-value
(LTV) ratio of 55% amortised over 20 years.
The property is in a good but not prime location. It is fully leased to a range of mainly
good credit rated tenants. Leases have between 3 years and 7 years remaining and
all have internal repairing only clauses with annual escalation to CPI.
Year 0
Year 1
Year 2
Year 3 Year 4
Market Value
-25.000
Transaction costs @ 6.80%
-1.700
Purchase cost
-26.700
Net Income
Capex @ 10.00%
Sale incl'g costs
2.250
2.340
2.434
2.531
-0.225
-0.234
-0.243
-0.253
29.246
Net Cash Flows
Figures shown in £millions.
-26.700
2.025
2.106
2.190 31.524
Set out the line by line After Debt Cash Flow, based on the details above and
whatever further reasonable and fully justified assumptions you feel are necessary.
The borrower only invests in property that can achieve an after debt annual return of
14.00% or above and an average forecasted cash-on-cash of 7.50%. Show your
detailed calculations and comment on whether this project is capable of meeting
these criteria?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 15 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education