Spreadsheet Problem. Refer to the Ch10_Mort Eq Cap tab in the Excel Workbook provided on the Web
Question:
Spreadsheet Problem. Refer to the Ch10_Mort Eq Cap tab in the Excel Workbook provided on the Web site. This replicates the example discussed on page 314 of the book.
a. Suppose there is an aggressive lender that is willing to allow the debt coverage ratio (DCR) to be as low as 1.0. Keep all other assumptions, including the loan interest rate and equity discount rate (before-tax equity yield), the same. How does this affect the amount that can be borrowed and the property value?
b. Refer to part (a). Is it reasonable to assume that the loan interest rate and equity discount rate would be the same? If not, would you expect each to be higher or lower? Why?
Discount RateDepending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
Step by Step Answer:
a The loan increases to 403673 from 336394 and the value increases to 5045...View the full answer
Real Estate Finance and Investments
ISBN: 978-0073377339
14th edition
Authors: William Brueggeman, Jeffrey Fisher
