A.4 The NOI for a small income property is expected to be $152,400 for the first year. Financing will be based on a 1.2 DCR applied to thefirst year NOI, will have a 10 percent interest rate, and will be amortized over 20 years with monthly payments. The NOI will increase 3percent per year after the first year. The investor expects to hold the property for five years. The resale price is estimated by applying a9 percent terminal capitalization rate to the sixth-year NOI. Investors require a 14 percent rate of return on equity (equity yield rate) forthis type of property.Required:a. What is the present value of the equity interest in the property?b. What is the total present value of the property (mortgage and equity interests)?c. Based on your answer to part (b), what is the implied overall capitalization rate?Answer is complete but not entirely correct.Complete this question by entering your answers in the tabs below.Required ARequired B Required CWhat is the total present value of the property (mortgage and equity interests)? (Do not round intermediate calculations.Round your final answer to the nearest dollar amount.)Total present valueS1,963,037< Required ARequired C >

Capitalization rate, often referred to as the cap rate, is a financial metric used in real estate to…

Answered: The NOI for a small income property is…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 1P

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The NOI for a small income property is expected to be $152,100 for the first year. Financing will be based on a 1.2 DCR applied to the first year NOI, will have a 10 percent interest rate, and will be amortized over 20 years with monthly payments. The NOI will increase 6 percent per year after the first year. The investor expects to hold the property for five years. The resale price is estimated by applying a 9 percent terminal capitalization rate to the sixth-year NOI. Investors require a 13 percent rate of return on equity (equity yield rate) for this type of property. Required: a. What is the present value of the equity interest in the property? b. What is the total present value of the property (mortgage and equity interests)? c. Based on your answer to part (b), what is the implied overall capitalization rate?
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