1) We have two criteria for the loan to be accepted.
a) 75% of loan to value = 0.75 * 2,000,000 = 1,500,000
b) 1.2 debt coverage ratio = debt coverage ratio = NOI/Debt service
NOI = 190,000, DCR = 1.2 Debt service = 190,000/1.2
= 158,333
based on the debt service amount we will calculate the loan eligibility for the same. Using the PV formula in excel we get
Particulars | Amount |
Interest Rate | 9.00% |
Coupon Payment | 158333 |
No of installments | 30 |
Future Value/Maturity Value | ₹ 0.00 |
Present Value | ₹ -1,626,658.46 |
so based on the above two calculations the developer is eligible for a loan of 1,500,000
Using cap rate also we get value of the property as 2,000,000 = 190,000/0.095
b) The lender have asked to rework the NOI with 7% vacancy allowance.
first we need to calculate the initial gross income of the property we get
Particulars | |
Gross Income | 304167 |
Vacancy Allowance @ 4% | 12167 |
operating expenses | 102000 |
NOI | 190000 |
The above is a simple mathematical calculation where NOI + Operating expenses = 96% of the gross income so calculate the 100%. by cross multiply we get 304167. Now we will apply the 7% vacancy allowance for the same.
Using 7% vacancy allowance the NOI is
Particulars | |
Gross Income | 304167 |
Vacancy Allowance @ 7% | 21292 |
operating expenses | 102000 |
NOI | 180875 |
Using NOI 18085, we need to calculate the DCR = 180875/1.2
= 150,729
Particulars | Amount |
Interest Rate | 9.00% |
Coupon Payment | 150729 |
No of installments | 30 |
Future Value/Maturity Value | ₹ 0.00 |
Present Value | ₹ -15,48,537.600 |
Using the 7% vacancy allowance also the maximum loan amount is 1,500,000 because the condition is whichever is lower.
3) we would need the following information about the borrower
a) past financial statements; to study the eligibility criteria and the history of its firm and to also know whether the firm is in debts or has the capacity to pay the debt if project is not progressing smoothly
b) credit history: to understand the way he has paid all his past obligations.
c) past projects: to understand the way the developer has worked, what projects he has completed and how he has delivered the projects.
d) collateral details: collateral details of the project, because if he project fails or the firm is unable to pay up the bank will need collateral to cover the dues.
Scenario 1: A developer is considering developing a Class A office building. The developers preliminary estimate...
9. If the stable developers such as HRI have a total
debt-to-total assets ratio in the range of 48-55 percent, how much
flexibility for future financing will HRI have if is issued at
present?
Case 31 The Debt versus Equity Financing Alternative High Rock Industries Kathleen Crawford, president and CEO of High Rock Industries, reflected upon the company's growth since its inception in 1975. That growth, indicative of the activity in land development in the mid-Atlantic region of the United...
Please read the facts of the case and prepare answers for the
following questions :
1 – What is the relevance of the $2,000 monthly payment
to Dave Verden on the analysis of Jones’ financing needs?
2 – What metrics could you use to compare the historical financial
results for Jones with the projected financial results under the
four defined scenarios?
3 – Other than financing needs, what other issues should Jones
address as he considers the different growth
scenarios?...
Read the attached article. Do you feel one style of banking
control is more stable than the other? Why? Does one banking method
minimize market volatility and risk better or is it just packaged
differently? Do you feel the US (Western) Banking system can better
control the patterns of behavior going forward that have caused
economic damage in the past? Should the Fed continue its stimulus
policy, reduce it or abandon it entirely (Google some recent
articles to research this)? (Please...