Financial Acctng formulas

Financial Acctng formulas - 14:15 Howmuchtoborrow:

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14:15 How much to borrow: We are purchasing a XYZ hotel for $50M. We compute the market value (pv of  future cash flows) to be $55million. We project the annual cash flows to be  $5M/yer. (Note this is a good project since NPV>0;NPV = PV of the cash flows-project  cost; 55-50=5=NPV) The bank’s terms and conditions are as follows; Interest rate on the loan is 7% for 10yrs (assume annual loan payment or debt  service) Loan to value ratio is 80% Loan to cost ratio is 90% Debt service coverage ratio (DSCR) is 4 times What is the maximum principal (loan amount) under each of criteria (ii-iv) What is the max. Principal we can get to borrow? Loan to value ratio of 80% Project value: $55 million LTV = loan/value =80% loan amt = valuex0.8=55x8=$44M Loan to cost ratio of 90%
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LTC=loan/cost = 90% loan/50=loanamt=50x.9=$45M DSCR: 4times DSCR = cash flows/loan payments (debt service)
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This note was uploaded on 03/08/2011 for the course MGF 1107 taught by Professor Storfer during the Spring '08 term at FIU.

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Financial Acctng formulas - 14:15 Howmuchtoborrow:

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