A lender requires a 1.20 debt coverage ratio as a minimum.If the net operating income of a property is $45,000,what annual amount of debt service would provide the required debt coverage ratio?
A)$37,500 or higher
B)$37,500 or lower
C)$54,000 or higher
D)$54,000 or lower

Question

Quizplus · Accepted Answer

To calculate the annual debt service required for a 1.20 debt coverage ratio, we divide the net operating income by 1.20.

Annual Debt Service = Net Operating Income / Debt Coverage Ratio 
Annual Debt Service = $45,000 / 1.20 
Annual Debt Service = $37,500

Therefore, the answer is B) $37,500 or lower, as any amount higher than $37,500 would result in a debt coverage ratio higher than 1.20.

A Lender Requires a 1