Question 1
Using the discounted cash áow (DCF) valuation method, what is the maximum
loan that can be made on a property with the following annual net beforetax cash áow, assuming a 10.5% discount rate and underwriting criteria which
specify a maximum loan/value ratio of 75%? Cash áows: $1 Million in year 1,
1.1 Million in year 2 through 4, 1.5 Million in year 5 through 9, and $12 Million
in year 10 including reversion?
Question 2
Suppose 10 year Treasury Bond yields in the bond market are 6.00% BEY, and
the mortgage market requires a contract yield risk premium of 200 basis points
(BEY). If a property has a (annual) net operating income (NOI) of $1,000,000,
and the underwriting criteria require a debt coverage ratio (DCR) of at least
120%, then what is the maximum loan that can be o§ered assuming a 25-year
amortization rate CPM and monthly payments on the mortgage?
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Real Estate Finance and Investments - Fall 2011 Homework 4 Question 1 Using the discounted cash ow (DCF) valuation method, what is the maximum loan that can be made on a property with the following annual net before- tax cash ow, assuming a 10.5% discount rate and underwriting criteria which specify a maximum loan/value ratio of 75%? Cash ows: $1 Million in year 1, 1.1 Million in year 2 through 4, 1.5 Million in year 5 through 9, and $12 Million in year 10 including reversion? Question 2 Suppose 10 year Treasury Bond yields in the bond market are 6.00% BEY, and the mortgage market requires a contract yield risk premium of 200 basis points (BEY). If a property has a (annual) net operating income (NOI) of $1,000,000, and the underwriting criteria require a debt coverage ratio (DCR) of at least 120%, then what is the maximum loan that can be o¤ered assuming a 25-year amortization rate CPM and monthly payments on the mortgage? 1