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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

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