A property is purchase for $15 million.Financing is obtained at a 75% loan-to-value ratio with total annual payments of $1,179,000.The property produces an NOI of $1,400,000.What is the equity dividend rate (ratio of first year cash flow to equity)?

Question

Quizplus · Accepted Answer

The equity dividend rate is the ratio of the first year cash flow to equity. The first year cash flow is the NOI minus the total annual payments, which is $1,400,000 - $1,179,000 = $221,000. The equity is the purchase price minus the loan amount, which is $15,000,000 - ($15,000,000 * 0.75) = $3,750,000. Therefore, the equity dividend rate is $221,000 / $3,750,000 = 5.89%.

A Property Is Purchase for $15 Million