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A stabilized, Class A office building with a sale price of $50,000,000 is being offered in a suburban area of a Tier 1 market. Suppose you are an analyst at a life insurance company lender and a mortgage banker has asked your firm to provide a credit-approved term sheet for a 70% LTV mortgage loan. You expect the following operating results during the first year of ownership: • Potential Gross Income (PGI) • Effective Gross Income (EGI) • Net Operating Income (NOI) $5,850,000 $5,400,000 $3,250,000

A stabilized, Class A office building with a sale price of $50,000,000 is being offered in a suburban area of a Tier 1 market. Suppose you are an analyst at a life insurance company lender and a mortgage banker has asked your firm to provide a credit-approved term sheet for a 70% LTV mortgage loan. You expect the following operating results during the first year of ownership: • Potential Gross Income (PGI) • Effective Gross Income (EGI) • Net Operating Income (NOI) $5,850,000 $5,400,000 $3,250,000

FINANCIAL ACCOUNTING
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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A stabilized, Class A office building with a sale price of $50,000,000 is being offered in a suburban area of a Tier 1 market. Suppose you are an analyst at a life insurance company lender and a mortgage banker has asked your firm to provide a credit-approved term sheet for a 70% LTV mortgage loan. You expect the following operating results during the first year of ownership: • Potential Gross Income (PGI) • Effective Gross Income (EGI) • Net Operating Income (NOI) $5,850,000 $5,400,000 $3,250,000 We covered debt coverage ratio (DCR) in Ch. 18. However, at that time you did not yet know how to calculate a mortgage payment, and so it was given to you in exercises. Let's revisit DCR. If the interest rate on the proposed loan is 6%, what is the DCR assuming the loan features a 25-year amortization? Hint: Remember to annual the mortgage payment (Input your answer as a rational number rounded to the nearest hundredth, e.g., 1.35)
Transcribed Image Text:A stabilized, Class A office building with a sale price of $50,000,000 is being offered in a suburban area of a Tier 1 market. Suppose you are an analyst at a life insurance company lender and a mortgage banker has asked your firm to provide a credit-approved term sheet for a 70% LTV mortgage loan. You expect the following operating results during the first year of ownership: • Potential Gross Income (PGI) • Effective Gross Income (EGI) • Net Operating Income (NOI) $5,850,000 $5,400,000 $3,250,000 We covered debt coverage ratio (DCR) in Ch. 18. However, at that time you did not yet know how to calculate a mortgage payment, and so it was given to you in exercises. Let's revisit DCR. If the interest rate on the proposed loan is 6%, what is the DCR assuming the loan features a 25-year amortization? Hint: Remember to annual the mortgage payment (Input your answer as a rational number rounded to the nearest hundredth, e.g., 1.35)
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