Finance
A Minnesota commercial real estate investor uses a debt service coverage ratio (DSCR) of 1.25 as their minimum standard. If annual NOI is $87,500, what is the maximum annual debt service this investor would accept?
A$70,000✓ Correct
B$109,375
C$87,500
D$65,625
Explanation
DSCR = NOI / Annual Debt Service. Minimum DSCR = 1.25. Maximum annual debt service = NOI / DSCR = $87,500 / 1.25 = $70,000. The DSCR ensures that the property generates enough income to cover the mortgage with a buffer. Commercial lenders in Minnesota typically require a minimum DSCR of 1.20-1.25 to ensure adequate cash flow.
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