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HB482ExamII_FALL04 - Part I Part II Part III Part IV Total...

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Max Rec’d Part I 30 Name (please print) Part II 30 Part III 15 Part IV 25 Total 100 Exam II HB 482 Fall, 2004 Schmidgall Part I – (30 points) The Wilson Inn, an upscale hotel, is proposed to be built. The estimated cost is $200,000,000. Assume a loan to value ratio of 75% and a debt service requirement of 1.5 for debt financing. The owners demand a 15% ROI. Assume the debt financing will be a 10-year loan. The loan will be amortized on a 30-year basis and the annual interest rate is 6%. Debt payments are paid on an annual basis at the end of each year. Required: 1. Determine the amount of the debt financing. 2. Determine the required annual cash flow necessary to obtain the loan given the debt service requirement. 3. What level of cash flow is required for the owners to say “yes” to this project? Page 1 of 9
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4. Construct a loan amortization schedule for the first two years. Year 0 1 2 5. Assume the debt payments would be made on a semi-annual basis. Would you recommend a an annual or a semi-annual payment plan? Explain why!
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