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An investor is considering the purchase of a property for $1 million
An investor is considering the purchase of a property for $1 million. Based on the $1 million price, the property has a cap rate of 10%. The investor can obtain an interest-only mortgage loan at 8.0%. Suppose the investor borrows 75% of the price to acquire the property. What is the maximum price the investor could pay for the property before debt financing has a negative effect on the equity cash yield?
Group of answer choices
$1,250,000
$1,300,500
$1,300,800
$1,400,400
Expert Solution
well i think option (A) is correct 12,50,000
since 75% of 1 million is 7,50,000
so, 1 million = 10,00,000 - 7,50,000 = 2,50,000
so, now, 10,00,000+2,50,000 = 12,50,000
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