You are a banker at one of Australia’s big four banks
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You are a banker at one of Australia’s big four banks

Question 4

You are a banker at one of Australia’s big four banks. You have been approached to debt finance the following real estate transaction.

The acquisition cost of the development site is $10m and the cost of construction of 100 apartments on the site is $25m. The 100-apartment development is expected to realise $50m.

What are the key issues and risks that a debt funder would consider in relation to the above transaction and how can these risks be mitigated?

Hint
Accounts & FinanceThe key risks which could be considered are Credit risk, Interest rate risk, Inflation risk, and the reinvestment risk etc. And, the key risks which needs be considered by a debt funder are the Credit Risk and Interest Rate Risk where the credit Risk is the default risk....
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