Cash Flow Analysis [2905]

The potential gross income of a shopping center is $3,700,000 per year. Market research indicates that a 12% vacancy allowance and a 3% collection allowance are reasonable. There is no other income. Operating expenses are about 40% of effective gross income.

The property recently sold for $14,000,000. The mortgage was 80% LTV, 10% interest for 20 years. Calculate the NOI, Equity Dividend Rate, Capitalization Rate using the Band of Investment method, and the Debt Coverage Ratio.

Potential Gross Income		$3,700,000
Less: Allowances	15%	$555,000
Other income		$0
Effective Gross Income		$3,145,000
Less: Operating Expenses	40%	$1,258,000
Net Operating Income		$1,887,000
Less: Debt Service		$1,315,548
Equity Dividend		$571,452
Equity Dividend Rate		20.4%
Debt Coverage Ratio		1.4

Sale Price		$14,000,000
Mortgage Position		80%
Equity Position		20%
Mortgage Amount		$11,200,000
Equity Amount		$2,800,000
Mortgage Rate		10.0%
Mortgage Term		20
Mortgage Constant		0.117460
Cap Rate		13.5%
Cap Rate using band of investment method		13.5%
EGI Multiplier		4.5
Gross income Multiplier		3.8