Question

Given the following information, calculate the debt coverage ratio of this commercial loan:

Estimated net operating income (NOI) in the first year: $150,000
Debt service in the first year: $100,000
Loan amount: $1,000,000
Purchase price: $1,300,000.

Answer 1

1.50

Step-by-step explanation:

The debt coverage ratio shows the extent to which the property is generating income in a bid to pay its debt service charge, it is computed using the below DSCR formula

DSCR= net operating income (NOI)/Debt service

net operating income (NOI)=$150,000

Debt service=interest expense or finance charge in the year=$100,000

DSCR=$150,000/$100,000

DSCR=1.50

The property in question is generating income that is 1.5 times its debt servce yearly