Question

What's the debt service coverage ratio for a loan based on the information as given below Building value $170,000 Loan amount $130,000 Net operating income $20,000 annually Mortgage payments $1000 per month .

Answer 1

The debt service coverage ratio for the loan is 1.67, indicating a relatively healthy financial position.

Step-by-step explanation:

The Debt Service Coverage Ratio (DSCR) is a measure of the cash flow available to pay current debt obligations. The formula to calculate the DSCR is Net Operating Income (NOI) divided by total debt service. The debt service coverage ratio is a financial ratio that measures a company's ability to cover its debt obligations. It is calculated by dividing the net operating income by the mortgage payments. In this case, the net operating income is $20,000 annually and the mortgage payments are $1000 per month, or $12,000 annually. So the debt service coverage ratio is:

Debt service coverage ratio = Net operating income / Mortgage payments

= $20,000 / $12,000

= 1.67

This means that the company's net operating income is 1.67 times greater than its mortgage payments, which indicates a relatively healthy financial position.