BSAD 295 solution 2 Investment Decisions: Ratios

Income multipliers: a. are useful as a preliminary analysis tool to weed out obviously unacceptable investment opportunities. 2. The overall capitalization rate calculated on a potential acquisition: a. is the reciprocal of the net income multiplier. 3. The operating expense ratio: c. expresses operating expenses as a percent of effective gross income. 4. The equity dividend rate: b. expresses before-tax cash flow as a percent of the required equity capital investment. 5. Ratio analysis: d. serves as an initial evaluation of the adequacy of an investment’s expected cash flows. 6. Assume a retail shopping center can be purchased for $5.5 million. The center’s first year NOI is expected to be $489,500. A $4,000,000 loan has been requested. The loan carries a 9.25 percent fixed contract rate, amortized monthly over 25 years with a 7-year term. What will be the property’s (annual) debt coverage ratio in the first year of operations?