Instructor key — Module 3: Sources & Uses of Funds: Purchase Price, Working Capital Injections, Rollover Equity, and Closing Fees
Instructor/solutions version. Keep separate from the student assignment during assessment.
Calculation solution
Uses are $2.9m price, $150,000 fees and $250,000 liquidity. Senior is $2.3m and seller note $300,000. Calculate balancing equity.
Calculated result: 700,000.00000000 (actual USD, except where the question requests a ratio or return). Total uses $3.3m; senior and deferred consideration fund $2.6m. Use appropriate display rounding while retaining formula precision. This result is generated from the independent assignment inputs, not copied from the chapter answer.
Conceptual and judgment marking
A complete conceptual response identifies the measure's economic purpose, the defined perimeter and the risk of confusing it with another metric. Award up to 20 points for explanation, not terminology alone. For the applied question, award up to 15 for linking evidence to a concrete acquisition consequence; do not require an optimistic recommendation.
Spreadsheet marking
Award 15 of the 30 spreadsheet points for live links from assumptions, 10 for a coherent 10% mutation and predicted direction, and 5 for units, readable formatting and checks. Inspect formulas directly rather than accepting cached numbers. Use the instructor workbook for the controlling capstone model; this independent lab uses different inputs.
Calculation marking: 10 points for the correct equation/perimeter, 15 for intermediate arithmetic, and 10 for result, units and rounding. Overall pass requires 80 and all critical checks in the student version.
Original chapter practice solutions
The following solutions were moved out of the chapter so full answers no longer sit immediately below student questions. Match them in order to the chapter's practice problems.
Worked solution: Uses total $5 million price plus $300,000 fees plus $200,000 cash plus $100,000 incremental NWC, or $5.6 million. Equity is $5.6 million − $4 million senior − $400,000 note = $1.2 million. Cash sources are $5.2 million, matching $4.6 million seller cash plus $600,000 other uses. The note supplies deferred consideration, not a cash deposit.
Worked solution: Seller proceeds fall $50,000. Restoration creates a new $50,000 use, offsetting that price reduction. Total funding remains unchanged before fees or other effects. If restoration occurs later, the short-term cash schedule must reflect timing, but the operating resource requirement has not vanished.
Worked solution: The remaining wire is $1.15 million, while total invested equity remains $1.2 million. Removing prepaid costs from uses without recognizing the earlier sponsor contribution would understate the investment. For dated return calculations, include the $50,000 on its actual payment date rather than pretending it was free.
Worked solution: Seller equity cash should be $1.7 million and debt payoff $300,000, totaling $2 million before other uses. The draft overstates consideration-related funding by $300,000. Alternatively, if the seller receives $2 million and repays its debt itself under a different agreement, the buyer should not also fund the payoff. Select one consistent contractual perimeter.
Worked solution: The structure and category must first be reviewed under the applicable retention, ownership, and guarantee requirements. A cash-flow table cannot simultaneously assume seller continuing equity and a transaction definition that excludes it. For the base case, reject the rollover source and retain the stated cash equity. If a different eligible transaction is proposed, rebuild the capitalization, funding, and program analysis transparently.