You are considering purchasing a small office building for $$2,500,000.$ You expect the potential gross income $(PG$ in the first year to

be $$450,000$; vacancy and collection losses to be $9$ percent of $PG$; and operating expenses and capital expenditures to be $42$

percent of effective gross income $($EG$).$ You will finance the acquisition with $25$ percent equity and $75$ percent debt. The annual

interest rate on the debt financing will be $5\mathrm{.}5$ percent. Payment will be made monthly based on a $25-$year amortization schedule.

Required:

a$.$ What is the implied first year overall capitalization rate?

b$.$ What is the expected debt coverage ratio in year $1$ of operations?

c$.$ If the lender requires the DCR to be $1\mathrm{.}25$ or greater, what is the maximum loan amount the lender will provide?

d$.$ What is the debt yield ratio?