7.6 Ruppert Kasten, a senior loan officer at First Delta Bank, is considering whether his bank should participate in the senior tranche for financing the acquisition of HLT Corp. At this point, he has summarized the projection made by the management of HLT who is part of the acquisition group. His intention is to determine:

(a) the debt capacity of HLT based upon management’s projection and

(b) how much debt can HLT carry if its growth were to be just half of that projection.

Growth of EBITDA 12.0%

Depreciation/EBITDA 41.0%

Other non-cash/EBITDA 1.0%

(Capex + Incr. in NWC)/EBITDA* 31.0%

Cash balance/EBITDA 0.2%

Interest on cash balance 5.0%

Tax rate 40.0%

Debt financing:

75% Senior @ 11.0%

25% Subordinated @ 13.5%

Amortization of senior by year 7 Net cash to senior amortization 100%

First year EBITDA $9.700 million