A property is for sale with an asking price of $2.75 million. The property is assumed to increase in value by 3.5% per year and be sold at the end for that exact price. Year 1 gross rents are estimated to be $280,000 and to increase at 4% per year. Vacancies and collections are estimated at 8% of rents. Operating expenses are estimated to be 35% of Effective Gross Income (Gross rents less vacancies/collections). The purchase will be financed through a loan with a 75% LTV, a 30 year term and an interest rate of 5.25% - the loan will be interest only, no principal amortization. For depreciation purposes, 80% of the purchase price is attributable to the property structure with the balance attributed to land. year 5 gross Based upon your calculations, what is the Year 1 debt coverage ratio (DCR)?:" а. 1.12 b. 1.55 С. 0.65 d. 18.6

A property is for sale with an asking price of $2.75 million. The property is assumed to increase in value by 3.5% per year and be sold at the end for that exact price. Year 1 gross rents are estimated to be $280,000 and to increase at 4% per year. Vacancies and collections are estimated at 8% of rents. Operating expenses are estimated to be 35% of Effective Gross Income (Gross rents less vacancies/collections). The purchase will be financed through a loan with a 75% LTV, a 30 year term and an interest rate of 5.25% - the loan will be interest only, no principal amortization. For depreciation purposes, 80% of the purchase price is attributable to the property structure with the balance attributed to land. year 5 gross Based upon your calculations, what is the Year 1 debt coverage ratio (DCR)?:" а. 1.12 b. 1.55 С. 0.65 d. 18.6

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

A property is for sale with an asking price of $2.75 million. The property is
assumed to increase in value by 3.5% per year and be sold at the end of year 5
for that exact price. Year 1 gross rents are estimated to be $280,000 and to
increase at 4% per year. Vacancies and collections are estimated at 8% of gross
rents. Operating expenses are estimated to be 35% of Effective Gross Income
(Gross rents less vacancies/collections). The purchase will be financed through a
loan with a 75% LTV, a 30 year term and an interest rate of 5.25% - the loan will
be interest only, no principal amortization. For depreciation purposes, 80% of
the purchase price is attributable to the property structure with the balance
attributed to land.
Based upon your calculations, what is the Year 1 debt coverage ratio (DCR)?:"
а.
1.12
b. 1.55
С.
0.65
d.
18.6

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