A property that can be purchased for $1.7 million has an expected first-year net operating income of $190,000. An investor is considering two loan alternatives:

LOAN A: a 70% loan-to-value ratio, with interest at 7.5% per annum; the loan will require level monthly payments to amortize the principal over 20 years.

LOAN B: an 80% loan-to-value ratio, with interest at 8% per annum; this loan will require level monthly payments to amortize the principal over 25 years.

For each loan, determine:

1) The expected before-tax cash flow (NOI - annual debt service) as a percentage of the equity investment

2) The actual before-tax cash flow as a percentage of the equity investment, if the actual net operating income falls 10% below expectations

3) The percentage by which actual net operating income can fall below expectations before it is just sufficient to provide for annual debt service

Show all work as well as the formulas you used.