Operating Statement and Ratios (Section 2

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Feb 20, 2024

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Jack Perkins BUSM 3050 Assignment: Section 2.3 Operating Statements and Investment Ratios You are considering the purchase of an office building for $4,000,000. You anticipate $750,000 first-year gross potential income; vacancy and collection loss equal to 10% of gross potential income; miscellaneous income equal to 2% of PGI; operating expenses equal to 40% of effective gross income; and capital expenditures equal to 5% of EGI. You have arranged a mortgage loan of $2,800,000 with an annual interest rate of 6%. The loan will be amortized over 20 years with a monthly payment of $20,060. Total upfront financing costs (closing costs) will equal 2% of the loan amount. Fill out the cash-flow statement (waterfall) below and answer/calculate the following questions. Item Amount________ Potential Gross Income (PGI): $ 750,000 Less Vacancy and Collection Loss (VC): $75,000 Miscellaneous Income: $15,000 = Effective Gross Income (EGI): $690,000 Less Operating Expenses (OE): $276,000 Less Capital Expenditures (CAPX): $34,500 = Net Operating Income (NOI): $379,500 Less Debt Service (DS): $240,720 = Before-Tax Cash Flow (BTCF): $138,780 1) What is the Net Operating Income (NOI)? $379,500 2) What is the CAP Rate? 9.49% 3) Calculate the Effective Gross Income Multiplier (EGIM): 5.8 4) What is the required equity investment? $1,200,000 5) Calculate the Equity Dividend Rate (EDR): 11.57%
6) Calculate the Net Income Multiplier (NIM): 10.54 7) Calculate the Cash-on-Cash or Operating Expense Ratio (OER): 40% 8) Calculate the Debt Coverage Ratio (DCR): 1.58 9) Calculate the Debt Yield Ratio (DYR): 13.55 10) Calculate the Loan-to-Value Ratio (LTV): 70%
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