A property produces a first year new operating income of $200,000. It was prucha

Question

A property produces a first year new operating income of $200,000. It was pruchased for $2,000,000 with an 80% LTV 30 year loan at 7% interest with annual payments. The land portion is valued at $200,000 and the building portion is valued at $1,800,000. Depreciation is straight line over 39 years.

a. If taxes are 25%, what is the After tax operating cash flow for the first year?

b. what is the debt coverage ratio?

c. What is the equity dividend rate?

Note: I need specific instruction on how to find the Debt service. I know what the answer is, but i can't seem to get my calculator to come up with it.

Explanation / Answer

a) Operating income $ 200,000.00 Less: Interest on loan $ 112,000.00 2000000*80%*7% Less: Depreciation $    46,153.85 1800000/39 Profit before tax $    41,846.15 Less: Tax@25% $    10,461.54 Net inocme $    31,384.62 Add: Depreciation $    46,153.85 After tax operating cash flows $    77,538.46 b) Debt service coverage ratio                   1.79 200000/112000 c) Equity dividend rate 38.77% 77538.46/200000

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