Homework Help is Here – Start Your Trial Now!
Business
Finance
A property is expected to have NOI of $100,000 the first year. The NOI is expected to increase by 5 percent per year thereafter. The purchase price of the property is $1.25 million and the lender is willing to make a $1,125,000 participation loan with a contract interest rate of 5.5 percent. The loan will be amortized with monthly payments over a 20-year term. In addition to the regular mortgage payments, the lender will receive 50 percent of the NOI in excess of $100,000 each year until the loan is repaid. The lender also will receive 50 percent of any increase in the value of the property. Assume that the property can be sold at the end of year 10 at a value that equals the NOI for year 11 divided by an 8 percent capitalization rate. 1. Compute the BTIRR after ten years for the investors, taking into account the equity participation. 2. What is the effective cost of debt? Is there positive financial leverage with the proposed loan?

A property is expected to have NOI of $100,000 the first year. The NOI is expected to increase by 5 percent per year thereafter. The purchase price of the property is $1.25 million and the lender is willing to make a $1,125,000 participation loan with a contract interest rate of 5.5 percent. The loan will be amortized with monthly payments over a 20-year term. In addition to the regular mortgage payments, the lender will receive 50 percent of the NOI in excess of $100,000 each year until the loan is repaid. The lender also will receive 50 percent of any increase in the value of the property. Assume that the property can be sold at the end of year 10 at a value that equals the NOI for year 11 divided by an 8 percent capitalization rate. 1. Compute the BTIRR after ten years for the investors, taking into account the equity participation. 2. What is the effective cost of debt? Is there positive financial leverage with the proposed loan?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 17P
See similar textbooks
icon
Related questions
Question

Ef 443.

A property is expected to have NOI of $100,000 the first year. The NOI is expected to increase by 5 percent per year thereafter. The purchase price of the property is $1.25 million and the lender is willing to make a $1,125,000 participation loan with a contract interest rate of 5.5 percent. The loan will be amortized with monthly payments over a 20-year term. In addition to the regular mortgage payments, the lender will receive 50 percent of the NOI in excess of $100,000 each year until the loan is repaid. The lender also will receive 50 percent of any increase in the value of the property. Assume that the property can be sold at the end of year 10 at a value that equals the NOI for year 11 divided by an 8 percent capitalization rate. 1. Compute the BTIRR after ten years for the investors, taking into account the equity participation. 2. What is the effective cost of debt? Is there positive financial leverage with the proposed loan?
Transcribed Image Text:A property is expected to have NOI of $100,000 the first year. The NOI is expected to increase by 5 percent per year thereafter. The purchase price of the property is $1.25 million and the lender is willing to make a $1,125,000 participation loan with a contract interest rate of 5.5 percent. The loan will be amortized with monthly payments over a 20-year term. In addition to the regular mortgage payments, the lender will receive 50 percent of the NOI in excess of $100,000 each year until the loan is repaid. The lender also will receive 50 percent of any increase in the value of the property. Assume that the property can be sold at the end of year 10 at a value that equals the NOI for year 11 divided by an 8 percent capitalization rate. 1. Compute the BTIRR after ten years for the investors, taking into account the equity participation. 2. What is the effective cost of debt? Is there positive financial leverage with the proposed loan?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 8 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Effective Annual Rate Of Return
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Intermediate Financial Management (MindTap Course…
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Corporate Fin Focused Approach
Corporate Fin Focused Approach
Finance
ISBN:
9781285660516
Author:
EHRHARDT
Publisher:
Cengage
Principles of Accounting Volume 1
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
SEE MORE TEXTBOOKS