Consider the following information for the first year of a proposed commercial property acquisition: effective gross income is estimated to be $1.8 million; total outgoings are $490,000; the investor has a 35% marginal tax rate. The asking price is $12.5 million. The property is going to be acquired with a 75% loan-to-value ratio mortgage, interest-only with a 10-year term and 6% p.a. interest rate. Depreciation is straight-line over 39 years. It is estimated that the depreciation expense is $320,000 in year 1.
What is the net income of the property in Year 1? (1 Mark)
Using an appropriate financial ratio, discuss the chances of loan approval for this investment.
Determine the first-year equity after-tax cash flow (ECF) if there are no capital improvement expenditures or reversion items in Year 1. (3 Marks)
See Question 2 in attached file
Question 3. A borrower obtained a fully amortising loan of $800,000 at 4% p.a. for 25 years. After 5 years, mortgage rates have dropped, so that a fully amortising 20-year loan can be obtained at 3.5% p.a. The early repayment (exit cost) and other refinancing costs will be $4,000.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more