1. This is a Debt Coverage Ratio or DCR question for part a and a CAP rate question for part b]. Wendy is going to purchase a commercial building and is working with a commercial lender at her local bank. The bank has some loan parameters that Wendy must follow. Understanding the rules will allow her to calculate her cash, income,
2. and payment projections. The bank requires a 1.4 debt coverage ratio for her project. Wendy needs to calculate her net operating income or NOI first. The debt coverage ratio is based on this number. Then she will apply for a 20-year loan at 5% with annual payments. Information on the property includes:

3. Gross rents- $780,000

   Vacancy 5%

   Salaries $85,000

   Other Fixed Expenses $125,000

   Variable Expenses 20% of gross rents.

   NOI=_________________

   Use the NOI and Debt Coverage requirement to calculate the answer.

4. What is the largest annual payment the bank will allow?
5. If Wendy had to buy the property at a 6% CAP (capitalization) rate, what is the asking price?

Answer rating: 100% (QA)

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