To pay for the building, you get an interest-only 15-year loan worth $7.5 million with an interest
rate of 6.5%.
1. What is the LTV of the loan?
2. How much cash will you need for your equity investment?
3. What is the debt service for each year?
4. What is the EBTCF for each year?
5. What is the debt yield ratio in each year?
6. What is the cash-on-cash return in each year?
Given this new information, you’d like to change the discount rate. (In other words, get rid of the
discount rate you used previously.) The debt investors expect to earn the interest rate on their
loan. You expect to earn 300 basis points more than that.
7. Using the WACC formula, what is the project’s required return?
8. What is the project’s NPV?
9. What is the project’s IRR?
10. What is your NPV from an equity perspective?
11. What is your IRR from an equity perspective?