Question

1. (10 pts.) A developer is proposing to build and operate an 8 store strip mall. Each unit would rent for $3,500 per month. It is expected that vacancy would run at 15% and that the expenses would be 17.5%. The loan is to be 75% of the capitalized value. The developer has an MARR of 12.5%, the bank is charging 8.5% interest, and the Long Term Debt Service is a constant 9%. To assess the financial worth of this endeavor, determine the following:

1. CAP Rate:

2. Capitalized value:

3. Loan amount:

4. Debt Service Coverage Ratio:

5. Loan per unit:

Answer 1

	No of stores	8
	Rent per month	$3,500.00
	Vacancy expected	15%
	Expected Annual collcetion of rent	$285,600.00
	Expenses (17.5%)	$49,980.000
	Net Operating Income (A)	$235,620.000
1	Capitalized value = A/MARR
	=235620/12.5%
	$1,884,960.00
2	Loan Amount = Cap Val*0.75
	$1,413,720.00
3	Loan per Unit = Total Loan/ 8
	$176,715.00
	MARR	=(0.75*cost of borrowings)+ (0.25*cost of equity)
	12.50%	=(0.75*8.5)+ (0.25*cost of equity)
	12.50%	=6.375+ (0.25*cost of equity)
	6.125	=(0.25*cost of equity)
	Cost of Equity	24.5