Question
You are interested in purchasing a business. Current owner of the business is asking $750,000. You estimated that you can borrow a 15-year term loan
You are interested in purchasing a business. Current owner of the business is asking $750,000. You estimated that you can borrow a 15-year term loan at 5% interest. You expect 18% return from this project. Current owner opened up the books and you estimated future cash flows. You also estimated that you would be able to sell the business for about $1,100,000 at the end of year 10.
Year
EBITDA
1
75,000
2
78,000
3
81,000
4
84,000
5
87,000
6
92,000
7
97,000
8
102,000
9
107,000
10
112,000
What will be the maximum debt payment amount a lender will be comfortable with if the lender has a minimum debt-service-coverage ratio requirement of 1.5 (use year 1 EBITDA)?
Select one:
a.125,000
b.50,000
c.112,500
d.75,000
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started