Instructor key — Module 4: Debt Amortization Schedules & The Debt Service Coverage Ratio (DSCR) Waterfall
Instructor/solutions version. Keep separate from the student assignment during assessment.
Calculation solution
CFADS is $510,000 and actual annual debt service $420,000. Calculate cash coverage.
Calculated result: 1.21428571 (actual USD, except where the question requests a ratio or return). Divide the expressly defined cash numerator by principal plus interest service. 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: Interest is $33,333.33. Principal is $52,860.29 − $33,333.33 = approximately $19,526.96. Ending debt is $3,980,473.04. Use unrounded values in the next row. A calculation that treats the entire payment as principal understates both debt and interest.
Worked solution: OCF is $758,282.87. After CapEx and principal, retained cash is $312,915.51. The alternative is CFADS $947,239.04 minus total service $634,323.54, giving the same amount within display rounding. Subtracting total service from OCF would charge interest twice.
Worked solution: CFADS is $947,239.04 − $2,700,000 × 7% = $758,239.04. Coverage is approximately 1.1954x, below 1.25x but above 1.0x. Annual residual cash is $123,915.51. Covenant breach and inability to make the next payment are different events, and both require attention.
Worked solution: EBITDA falls $40,000 and cash taxes fall $10,000. CFADS decreases $30,000 to $917,239.04. Coverage is approximately 1.4460x. If the event instead requires capital investment without a current tax deduction, the immediate cash effect differs. Classify the expenditure before choosing the bridge.
Worked solution: No. The relevant covenant numerator produces 1.10x, so it fails despite the higher EBITDA ratio. The buyer must distinguish the contractual test from the program-style historical calculation and seek a documented financing or operating solution. Renaming the EBITDA ratio “DSCR” does not cure the breach.