A developer wants to finance a project costing $$1\mathrm{.}5$ million with a $70$ percent, $25-$year loan at an

interest rate of $8$ percent. The project$$s NOI is expected to be $$120,000$ during year $1$ and the NOI,

as well as its value, is expected to increase at an annual rate of $3$ percent thereafter. The lender

will require an initial debt coverage ratio of at least $1\mathrm{.}20.$

a$.$ Would the lender be likely to make the loan to the developer? Support your answer with

cash flow statement for a five$-$year period. What would be the developer$$s before$-$tax

yield on equity $($BTIRR$)?$

b$.$ Based on the projection in $($a$),$ what would be the maximum loan amount that the lender

would make if the debt coverage ratio was $1\mathrm{.}15$ for year $1?$ What would be the loan$-$to$-$

value ratio?

c$.$ Assuming conditions in part $($a$),$ suppose that mortgage interest rates suddenly increase

from $8$ percent to $10$ percent. NOI and value will now increase at a rate of $5$ percent. If

the desired DCR is $1\mathrm{.}20,$ will the lender be as willing to make a conventional loan now?

Support your answer with a cash flow statement.