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Suppose you wanted to purchase a commercial real estate property thats valued at $ 1 , 0 0 0 , 0 0 0 . You

Suppose you wanted to purchase a commercial real estate property thats valued at $1,000,000. You could secure financing from a traditional bank, which provides you with $750,000. The bank will offer that loan with an interest rate of 8% per year on an interest only basis. To purchase the property, youd need to put up $250,000 of your money. assume the property can earn you around $200,000/year. 

(a) How much interest would you owe the bank yearly assuming the loan in interest only?(b) What is you annual return on equity assuming you only take a bank loan as stated above? To lower the amount of equity you need to put into the property, you find a mezzanine investor who is willing to put in $150,000 at 12%.(c) How much interest do you owe the mezzanine investor annually assuming the mezzanine loan is interest only?(d) What is your annual return on equity now with the mezzanine loan? Assume you sell the property after 3 years for $2,000,000.(It is) What is your total return on equity after paying off the senior debt and the mezzanine loan?

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