In this workout, Bjorn has acquired 100% of Vegard through debt finance only Bjorn wants to keep its current credit rating post deal, Calculate the maximum debt capacity for the combo and additional debt Bjorn can issue in the transaction If the leverage limit for Bjorn's current credit rating is three times debt to EBITDA Okay so the first thing we need to do is calculate EBITDA for the combo company and then times it by 3 So we start off with sales, minus our operating expenses for Bjorn, that gets me their EBIT Copy it right and that gives me the same for Vegard We then need to add back depreciation and amortization and I've now got EBITDA for both Bjorn and Vegard Now as well as that, we've also got pre tax S&GA synergies which can be added on (that's a transaction effect) So now we come to our combo EBITDA, which is the sum of the two EBITDAs put together and the pre tax synergies Getting me 1,004 I can now multiply that by the maximum debt to EBITDA ratio of 3 There we go, our maximum combo debt is 3,012 But the next part of the workout asks us to calculate the additional debt that can be taken on Well for that, I need to workout Bjorn's debt, Vegard's debt Then workout how much we can get by looking at the maximum combo here So the current debt of Bjorn is 1,100 Vegard's debt is 210 Therefore the maximum additional debt financing is the 3,012 Minus the 1,100 they've already got and minus the 210 debt they've already got, giving us 1,702 being the additional debt that can be raised