Question

Given the following information, calculate the debt coverage ratio for this investment. Potential gross income: $120,000, Vacancy rate: 9%, Net operating income: $57,900, Operating expenses: $51,300, Acquisition Price: $520,000, Debt service: $40,000.

Answer 1

the debt coverage ratio is 1.4475 times

Step-by-step explanation:

The computation of the debt coverage ratio is shown below;

The Debt coverage ratio for investment is

= net operating income ÷ Total debt

= $57,900 ÷ $40,000

= 1.4475 times

BY dividing the net operating income by the total debt we can get the debt coverage ratio

hence, the debt coverage ratio is 1.4475 times