Question

In: Finance

Your client is contemplating buying an industrial building in Pointe-Claire for $1,000,000. He estimates that the...

Your client is contemplating buying an industrial building in Pointe-Claire for $1,000,000. He estimates that the NOI for the first year will be $120,000. A lender has offered him a mortgage loan of $500,000 at a yearly interest rate of 8% with a 20 amortization. What is the DSCR of the loan?

a. 28.9

b. 0.24

c. 4.16

d. 2.41

e. 2.85

Solutions

Expert Solution

Debt service coverage ratio refers to the ratio which helps to measure the company financial soundness to meet the obligations of debt payment.

Debt service coverage ratio = Net operating income / Total Debt

Net operating income = 120000

Total Debt = 500000

So, Debt service coverage ratio = 120000/500000

Which is 0.24

Option B is correct

jeff jeffy answered 2 years ago
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