Question

How do you get the annual payment amount to this question? I was able to get the monthly payment amount which is $86,136.50 home / study / business / finance / finance questions and answers / a client of mr. richards wants to purchase a large commercial building. the building cost $20 ... Question: A client of Mr. Richards wants to purchase a large commercial building. The building cost $20 mil... A client of Mr. Richards wants to purchase a large commercial building. The building cost $20 million and he will make a down payment of 15% and finance the rest with a local bank.​ The bank terms are 10 years bullet loan with 30 year amortization at 4.5% interest. The building earns annual rent of $2,500,000. and it pays annual taxes of $1,000,000. per year. What will be the annual cash flow from the building? What willbe the ROI on the investment?

Answer 1

A bullet loan is a loan in which your periodic payments are calculated based on the amortization period. However at the end of the bullet loan term, you are required to pay-off a lump-sum amount to repay the loan. Bullet loan term is 10 years
Building Cost	$20,000,000.00
Less: 15% downpayment	$3,000,000.00
Loan	$17,000,000.00
Rate = 4.5%/12	0.38%
Period = 10 x 12	120
Monthly Payment = PMT(.38%,120,176,185.29)	$176,185.29
Total Cost of Loan = $176,185.29 x 120	$21,142,235.39
OCF = EBIT + Depreciation – Taxes
Depreciation = $20,000,000/30 year	$666,666.67
OCF = $2,500,000 + 666,666.67 - $1,000,000	$2,166,666.67
b)
ROI on the building is = (Gain from Investment - Cost of Investment) / Cost of Investment
Gain from investment is the rental income for 10 years = $2,500,000 x 10	$25,000,000.00
Cost of Investment (calculated above)	$21,142,235.39
ROI = ($25,000,000 - $21,142,235.39)/$21,142,235.39	18.25%