In this workout, we're going to take a look at building a sources and uses of funds. We've got some information here. We got a private equity fund, acquired the equity of Pumpkin Corporation for 10,000. The company's last 12 months EBITDA is 1,200. The total amount of debt, net debt to be refinanced as a result of the acquisition is 3,560.

And the reason that net debt is being refinanced is because the existing debt holders are seeing the leverage change and they're probably tricking a covenant that says, if the debt goes beyond this level or if the control changes of the business, we want to be immediately repaid. The banks which are coming in to finance the transaction have agreed to provide up to four and a half times EBITDA of senior debt. And we've also got some investors who are prepared to finance one times EBITDA in mezzanine finance. So now what we need to do is calculate the required equity financing to complete the transaction, because the equity financing is going to be an effective plug. So we're gonna start by doing the uses of funds first. So what is the equity purchase price? Well, we've got an assumption for that up at the top, which is 10,000. And then we've got to calculate how much debt or figure out how much debt will need to be repaid or refinanced. And you can see we have an assumption up there which is 3,560. There's no assumption for fees, unfortunately. Just keep the numbers simple. But this means that we've got to finance the total of the equity purchase price and we've got to refinance the net debt. So I'm going to sum up those two elements and we get 13,560.

Now the sources of funds, remember we had some lenders who are willing to lend us four and a half times EBITDA. So I'm going to take that assumption for four and a half times that we've got up above and I'm gonna multiply it by the last 12 months EBITDA. Lenders typically use last 12 months EBITDA 'cause it's more conservative. These are numbers that the company have delivered. So we'll take the LTM EBITDA of 1,200, multiply it by four and a half, and that will give us our senior debt financing. So you can almost, you'd often see that called perhaps term B lending, or it could be first lean lending. And in this case, we're just lumping it into senior debt. It just means it's the debt that gets repaid first. Now the mezzanine financing is typically sitting in between the debt financing and the equity financing. And mezzanine financing will typically have an interest rate, so it feels like a loan in that respect, but it may well have warrants attached to it. In other words, if you are the mezzanine holder, you'll get your interest, but you'll also be able to exercise some warrants which will allow you to buy equity at a fixed price. Now, we're not putting warrants in here for simplicity but we are going to take the assumption which is one times EBITDA. So I'm gonna take the one times and I'm gonna multiply that by the last 12 months EBITDA of 1,200 and I get 1,200. Now for our equity financing, this is the plug, and we have got a financing requirement of 13,560. So we're going to ensure that the total sources of funds is going to equal the uses of funds. And we're gonna do that by taking the total uses of funds here and then subtracting the senior debt financing and then subtracting the mezzanine loan financing. Hit Enter, and that gives us the plug number. So this is the amount that we need to put into the deal as equity holders to make sure that we've got enough financing to buy the business, buy the equity, and also refinance the net debt. And when I add up the total sources of funds to sum there, you see that the uses of funds equal the sources of funds. So this means we've got exactly enough financing to meet the requirements of what we expect to spend money on. And this layout of the uses and the sources of funds is very, very common in any transaction model.