A lender has outlined key terms for a 4-year annuity balloon mortgage at a fixed interest rate including the credit margin of 5.50%, with a maximum loan-to-value (LTV) ratio of 55% amortised over 20 years. The property is in a good but not prime location. It is fully leased to a range of mainly good credit rated tenants. Leases have between 3 years and 7 years remaining and all have internal repairing only clauses with annual escalation to CPI. Year 0 Year 1 Year 2 Year 3 Year 4 Market Value -25.000 Transaction costs @ 6.80% -1.700 Purchase cost -26.700 Net Income Capex @ 10.00% Sale incl'g costs 2.250 2.340 2.434 2.531 -0.225 -0.234 -0.243 -0.253 29.246 Net Cash Flows Figures shown in £millions. -26.700 2.025 2.106 2.190 31.524 Set out the line by line After Debt Cash Flow, based on the details above and whatever further reasonable and fully justified assumptions you feel are necessary. The borrower only invests in property that can achieve an after debt annual return of 14.00% or above and an average forecasted cash-on-cash of 7.50%. Show your detailed calculations and comment on whether this project is capable of meeting these criteria?

A lender has outlined key terms for a 4-year annuity balloon mortgage at a fixed interest rate including the credit margin of 5.50%, with a maximum loan-to-value (LTV) ratio of 55% amortised over 20 years. The property is in a good but not prime location. It is fully leased to a range of mainly good credit rated tenants. Leases have between 3 years and 7 years remaining and all have internal repairing only clauses with annual escalation to CPI. Year 0 Year 1 Year 2 Year 3 Year 4 Market Value -25.000 Transaction costs @ 6.80% -1.700 Purchase cost -26.700 Net Income Capex @ 10.00% Sale incl'g costs 2.250 2.340 2.434 2.531 -0.225 -0.234 -0.243 -0.253 29.246 Net Cash Flows Figures shown in £millions. -26.700 2.025 2.106 2.190 31.524 Set out the line by line After Debt Cash Flow, based on the details above and whatever further reasonable and fully justified assumptions you feel are necessary. The borrower only invests in property that can achieve an after debt annual return of 14.00% or above and an average forecasted cash-on-cash of 7.50%. Show your detailed calculations and comment on whether this project is capable of meeting these criteria?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 17P

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