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In: Finance

3. You are the CFO of a company looking to build a new office park beginning...

3. You are the CFO of a company looking to build a new office park beginning five years from now.
You will need $2M to purchase land at that time and immediately hypothecate the parcel to stand for
a 24-month, straight (non-amortizing) construction loan of $1.5M @ 7%. Also at that time you will
pay a half point commitment fee to the take-out lender. Upon completion (seven years from now), the
take-out lender will take over the construction loan balance ($1.5M) for a 20-year, 5%, level monthly
payment fully amortized mortgage.

a. How much will you have to set aside each quarter beginning three months from now in MMF
earning 1%/qtr. to have the necessary funds available to purchase the parcel and pay the commitment
fee?

b. You anticipate either selling the building or refinancing it after 10 years. How much will the
balance be on the mortgage at the halfway point?

Solutions

Expert Solution

jeff jeffy answered 2 years ago
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