You are an Analyst for J$.$P$.$ Morgan Chase $($Bank$).$ The Bank is loaning funds on the following terms: LTV: $65\%$ Rate:$5\mathrm{.}75\%$ Amortization $($Years$)$:$30$ Term $($Years$)$:$30$ DSCR:$1\mathrm{.}25$ You have been assigned the following loan application.$$ The application is from Smith Button Corporation.$$ They have been in business for almost $5$ years and operate out of a factory on Long Island.$$ They are profitable, showing a profit this year of more than $$657,000.$ Not bad.$$ Additionally, the factory is in a real estate market considered $$hot$$ with values growing.$$ Your superiors believe this to be a growing company with tremendous potential.$$ There is pressure on you to approve this loan.$$ The company was formed five years ago and was funded by friends and family loans.$$ Nothing recorded or official.$$ Just a loan between friends and family.$$ For this, the company pays a dividend to the investors of approximately $7\%.$ Additionally, the company pays rent to a family$-$owned Trust that owns their factory.$$ The company has been paying almost $$20,000$ a year in rent.$$ The Trust has approached the company about purchasing the factory.$$ The Trust wants out of real estate.$$ Smith Button management is excited to purchase the factory and believes the debt payment will be less than the rent.$$ A slam dunk!$$ Bank management has told you to ignore the Friends & Family loan because it is not recorded or formal.$$ It is believed that if there was an issue the obligation would not hinder the company.$$ The Bank$$s appraisal department has shared their assumptions with you.$$ They are:$$ Capitalization Rate: $6\%$ Residual Rate: $10\mathrm{.}5\%($Capitalization Rate plus The Growth Rate$)$ Growth Rate:$4\mathrm{.}5\%$ Inflation Rate: $2\mathrm{.}8\%$ Dividend Rate: $7\%$ Bank management wants you to answer the following questions AND make a recommendation on doing the loan. Please prepare a $10-$year model detailing the cash flow and the debt service payment. What is the IRR?$$ Does it support a $7\%$ Dividend? What is the NPV$?$ Does the NPV support the Purchase Price? What is the annual debt? Does the Cash Flow support the LTV$?$ What is the LTV value? Do you recommend this deal and how much would you lend? $$