Questions 13-25 will use the assumptions as explained below.

In this scenario, the acquisition price of a hotel in NYC is $600,000,000. The LTV is 70%. The closing costs to acquire the property are 5% of the loan amount. The investor will sell the property after 5 years. The loan on the property is a 5/1 ARM amortized over 30 years with an interest rate of 5%. The lender requires a DSCR of 1.1 The lender requires a Debt Yield Ratio of 9% or higher.

Potential Gross Income is projected to be 15% of the acquisition price and is projected to increase 2% per year every year during the hold period. Vacancy is projected to be 25% of PGI every year with no change over 5 years. Operating Expenses are projected to be 32% of EGI with no change over 5 years. Capital Expenditures are projected to be 12% of EGI with no change over 5 years. The cost to sell the property in year 5 is 6% of the future sales price. The investor acquiring the hotel has a WACC/hurdle rate of 12% and a reinvestment rate of 18%. The company has projected that the going out Cap Rate will be 5.5. The firm is looking for an IRR of 15% or higher.

QUESTION 13

What is the Going In Cap Rate of this investment using the acquisition price and year one projected NOI?

		7.2%
		7.6%
		5.74%
		6.30%

QUESTION 14

What is the loan balance after 5 years assuming the loan has been paid down at a regular pace?

	a.	342,398,439
	b.	385,680,674
	c.	346,550,087
	d.	339,929,147

QUESTION 15

What is the projected future sales price in year 5?

	a.	$653,754,884
	b.	$758,804,625
	c.	$759,831,712
	d.	$729,227,562

QUESTION 16

What is the Before Tax Equity Reversion assuming the loan has been paid down at a regular pace over 5 years?

	a.	$358,844,331
	b.	$327,595,673
	c.	$343,546,889
	d.	$288,056,288

QUESTION 17

What is the NPV for the equity investor based on BTCF and BTER?

	a.	It is positive. Good investment for the firm.
	b.	It is negative $8,628,656. Bad investment for the firm
	c.	It is negative $26,851,908. Good investment for the firm
	d.	It is 17.65%

QUESTION 18

What is the IRR for the 5-year hold? MAKE SURE YOU ARE USING the initial investment, BTCF and BTER.

	a.	20.4%
	b.	15.29%
	c.	17.4%
	d.	11.6%

QUESTION 19

Does the investment have favorable leverage?

	a.	No, because the NPV on the building is negative.
	b.	Yes, because the NPV is positive.
	c.	Yes, because the IRR for the Equity Investor is higher than the Mortgage Interest Rate.
	d.	Yes, because the IRR on the building is higher than the WACC.

QUESTION 20

Should the investor purchase this building?

	a.	Yes, because the NPV for the equity investor is negative
	b.	Yes, because the IRR is greater than the mortgage interest rate.
	c.	Yes, because the IRR on the building is higher than their requirement and the NPV is positive.
	d.	No, because the CAP rate is less than the IRR.

QUESTION 21

What is the Debt Yield Ratio and is it favorable to the lender?

	a.	9%. Yes.
	b.	11.0% Yes
	c.	11.6% No
	d.	7.8% No

QUESTION 22

What is the ratio used to determine how many years is will take for the first year NOI to equal the acquisition price?

	a.	Debt Yield Ratio, 7.8
	b.	Equity Dividend rate, 3.17
	c.	EGI Multiplier, 1.48
	d.	NIM, 15.9

QUESTION 23

What would the appraisers valuation of the building be if they used the 1^st year projected NOI we have come up with in this scenario and a CAP rate comprised of 5 comps where comp 1 = 5.6%, comp 2 = 5.8%, comp 3 = 5.9%, comp 4 = 6.2% and comp 5 = 5.1%?

	a.	$660,839,160
	b.	$675,088,655
	c.	$582,487,996
	d.	$687,537,062

QUESTION 24

If the loan was a 3/1 ARM with CAPS of 2/2/5, what rate would the loan adjust to in years 4 and 5 if the ARM had a margin of 2% and the index rate for the year 4 adjustment was 6% and 9% in year 5?

	a.	5% and 9%
	b.	8% and 11%
	c.	7% and 9%
	d.	6% and 8%

QUESTION 25

What would the after-tax IRR be in this scenario if the companys tax rate was expected to be 25%?

	a.	10.6%
	b.	15.4%
	c.	8.31%
	d.	14.2%