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    Debt Capacity

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    You have recently acquired a family business that has no debt. You are interested in borrowing funds for other prospective acquisitions. You learn that to be able to keep your company at a level of "investment grade" and to be able to borrow at 6.5%, your operating cash flow coverage must be at least three times debt service. You forecast operating cash flow at $25 million. What is your debt capacity?

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    Operating cash flow coverage = Operating cash flow/Interest = 3 (this is what is to be maintained)
    Maximum interest ...

    Solution Summary

    The solution explains how to determine the debt capacity