Reference no: EM132534234

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

Question 1: 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