# CORNELL HADM 3210 - Prelim II Exam Review-WithAnswers-3210-F13 revised 4 November (11 pages)

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## Prelim II Exam Review-WithAnswers-3210-F13 revised 4 November

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- Pages:
- 11
- School:
- Cornell University
- Course:
- Hadm 3210 - Principles of Hospitality Real Estate

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School of Hotel Administration HAdm 3210 Principles of Hospitality Real Estate Cornell University Fall 2013 Preliminary Examination II Announcement The Preliminary Examination is scheduled for Tuesday November 19 at 7 30pm in Statler 265 Last Names A K Statler 196 Last Names L S and Statler 165 Last Names T Z There will not be a makeup exam except by university excuse You should bring to the exam 1 2 Several pencils A financial calculator see syllabus You may bring to the exam 1 One 1 sheet 8 X 11 or A4 of paper with any facts notes formulas etc you wish to have during the exam i e two crib sheets one of which might be the one you created for the preliminary exam The sheets must be handwritten originals you may write on both sides you will be asked to turn in the sheets with your exam The present value formulas will be provided see top of next page You may not use during the exam 1 Any personal musical device cell phone computer laptop or PDA The exam will consist of a series of multiple choice short answer and calculation type problems The exam covers material presented in Lectures 11 21 You should know how to perform present value calculations on your financial calculator including The present value of a future cash flow The present value of an annuity The monthly or annual loan payment for a given loan and the mortgage constant Net Present Value and IRR for the analysis of a multi year investment See next page for formulas that will be provided Suggestions for Study 1 2 3 4 Review the text and readings Review your lecture notes and the lecture outlines Review the homework and their respective solutions on the Blackboard site Assignments section Study the practice prelim questions attached 1 The practice problems are meant to be indicative of the types of questions you will see on the preliminary examination 1 True False Mezzanine debt holders get paid before equity a True 2 Describe how one could obtain a promoted interest promote in a project a The promoted interest is part of the process of negotiating for sweat equity in a deal The promoted interest is a legal device in which an equity interest is created if certain things usually good things happen For example a promoted interest is often created once an investment produces a targeted return on investment or equity yield to the money partner 3 Lenders underwrite generally consider three broad categories when deciding whether to originate a loan of a project List the three categories and provide an example of the type of information that lenders would require a Quality of the borrower personal financial statements and financial statements for the borrower s businesses b Quality of the project market study and or appraisal c Quality of the market market study and or appraisal 4 You are seeking a loan for your restaurant which had a cash flow of 500 000 last year The lender says that they will underwrite the loan with a 2 0 debt coverage ratio on last year s cash flow using an interest rate of 7 5 20 year amortization monthly payments and requires an origination fee of 2 points What are the estimated net loan proceeds Show your work a Annual Debt Service 500 000 2 0 250 000 year 20 833 33 month b Gross Loan Proceeds 2 586 086 07 from calculator 240 payments of 20 833 33 using the annual interest rate of 7 5 c Origination Fee 51 721 72 2 0 of 2 586 086 07 d Net Loan Proceeds 2 534 364 35 2 586 086 07 51 721 72 2 5 What is the loan amount for a mortgage with the following parameters 1 5 DCR on 240 000 of Stabilized NOI 8 0 annual interest Interest Only Loan No Amortization 10 Year Term a 1 073 613 LA NOI DCR 240K 1 5 b 1 600 000 MC 08 c 2 000 000 d 2 400 000 e Cannot determine from information provided 6 A loan with a DCR of 1 3 will be a loan with a DCR of 1 5 holding all other factors constant a Smaller than b The same size as c Larger than d More important than 7 Calculate the net proceeds from the refinancing outlined below Existing Loan o Original Amount 400 000 o Interest Rate 11 o Loan Term 15 years o Amortization Term 20 years o Payments Monthly o Age of Loan 10 years o Current Remaining Balance 299 728 o Prepayment Penalty 5 of remaining balance Remaining Balance 299 728 1 05 314 714 including prepayment penalty New Loan o 1 25 DCR on 90 000 of annual NOI o Interest Rate o Amortization Term o Payments o Points Origination Fees New Loan Less Points Net Loan Proceeds Less Existing Loan Payoff Net Proceeds from Refinancing 8 5 20 years MC 1041388 Monthly 2 691 385 90K 1 25 1041388 13 827 677 557 314 714 362 842 8 For any given real estate investment assuming that the loan will have a LTV of 66 means that the loan will be than a loan with a LTV of 75 holding all other factors constant a Smaller than b The same size as c Larger than d More important than 3 9 Consider a mortgage with the following characteristics Do not show calculations no partial credit Loan Amount 1 000 000 Annual Interest Rate 9 0 Loan Term 15 years Amortization Term 20 years Payments per Year 12 Points Paid at Origination 3 Prepayment Penalty None If the loan is held for 10 years instead of the full 15 year term the effective cost of borrowing ECB will a Decrease b Stay the same c Increase d Cannot determine from information given 10 Define Internal Rate of Return IRR That rate of return that makes the present value of the inflows equal to the present value of the outflows 11 Be prepared to calculate the ECB of a loan with points and a prepayment penalty A good practice problem is found in lecture 14 replicate the 5 98 ECB on page three of the lecture II Plain Vanilla Loan with Points and Prepayment Penalty Loan Amount Annual Interest Rate Loan Term Amortization Term Payments Per Year Points paid at Origination Prepayment Penalty or Additional Interest Periodic Payment Loan Amount less Points RMB PPP ECB using the RATE function times 12 20 000 000 5 50 10 25 12 2 00 3 00 of Remaining Mortgage Balance 122 817 using the PMT function 19 600 000 15 031 206 using the FV function 450 936 ECB 5 98 4 12 Calculate the ECB of the following loan over the 5 year 60 month loan term Loan Amount Annual Interest Rate Amortization Term Payments per Year Loan Term Points at Origination Exit Fee at End of Loan Term 1 000 000 6 75 20 years 12 monthly payments 5 years 1 0 0 5 of remaining balance a Calculate Net Loan Amount Loan Amount Less Point 990 000 …

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