| Course | FI499 Bachelor's Capstone in Finance |
|---|---|
| Unit | Unit 7 |
| Paper type | Risk assessment |
| Length | About 1,090 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Finance |
| Updated | October 2026 |
Free sample paper for FI499 Unit 7
Five Things That Could Go Wrong, Each With a Price: A Unit 7 Capstone Risk Assessment of a Swim School Acquisition
[Student Name]
Purdue University Global
FI499: Bachelor's Capstone in Finance
Unit 7 Risk Assessment
[Instructor Name]
[Date]
Tidewell, Paddlemark and every figure are composite; the books cited are real.
The Starting Point
Unit 5 put Paddlemark's value to Tidewell $1.54 million above what the seller asks. After closing, Tidewell would owe $26.0 million, which is 2.74 times the two companies' EBITDA added together, while the loan covenant allows up to 3.5 times. Every risk below is measured against those two margins: the value cushion and the covenant headroom.
Risk 1: Losing Two Building Leases
Trigger. Two of Paddlemark's six schools operate in leased buildings whose leases expire at the end of year three. The case file does not state renewal terms, and one landlord has recently redeveloped a neighboring property.
Effect. If both schools close at the end of year three, Paddlemark loses a third of its revenue and EBITDA from year four onward, though upkeep spending falls too. Rerunning the Unit 5 model on that basis cuts value from $22.54 million to $17.64 million, $3.36 million below the price.
Response. Make signed extensions of both leases, for at least ten years at stated rents, a condition of closing.
Risk 2: Savings Fall Short
Trigger. The $350,000 of annual savings (A5) depends on buying pool chemicals and equipment together, cutting one regional manager's post and moving every school onto Tidewell's enrollment software. Acquirers often overestimate such savings and deliver them late (Sirower, 1997).
Effect. Value falls to the price if savings are about $157,000 a year instead of $350,000, a shortfall of 55 percent. With no savings at all, value is $19.75 million.
Response. Assign each savings item an owner and a date before closing, and track them monthly in the first year.
Risk 3: Families Leave After the Rebrand
Trigger. Just over half of Paddlemark's revenue comes from monthly tuition plans that families can cancel at any time. The rebrand gives every family a moment to reconsider.
Effect. The base case assumes first-year revenue falls 2 percent. Value reaches the price if the fall is 8.8 percent and stays in the base thereafter. That is a large cushion in percentage terms, but no evidence in the file shows how families respond to a rebrand.
Response. Withhold $1.5 million of the price for twelve months, released in proportion to verified enrollment against an agreed baseline. Keep Paddlemark's instructors in place through the transition, since families follow instructors.
Risk 4: A Recession Year
Trigger. Swim lessons are partly discretionary; in a downturn some families drop lessons or move children to cheaper public programs.
Effect. A recession that cut combined EBITDA by 12 percent would raise debt from 2.74 to about 3.12 times EBITDA, still under the 3.5-times covenant. A breach would require a fall of about 21.6 percent. The value effect depends on how long the downturn lasts; a single bad year has a modest effect on a value that rests mostly on the years after five.
Response. Keep at least $1.0 million of cash after closing and agree an equity cure provision with the lender, allowing Tidewell's owners to inject cash to cure a breach.
Risk 5: Rising Interest Rates
Trigger. The $14.0 million term loan floats.
Effect. A two-point rise adds $280,000 of annual interest. Interest coverage, measured as operating profit after depreciation over interest, falls from about 2.82 to 2.47 times. Value to Tidewell's owners is not directly affected in the model, which discounts cash flows at a rate that already reflects financing, but cash available for dividends and further growth falls.
Response. Buy a rate cap on at least $10 million of the loan for three years.
Ranked by what they could cost Tidewell's owners, the lost leases come first because they alone would push value $3.36 million below the price, while the savings shortfall comes second because it needs only a moderate miss to erase the cushion, so the two most dangerous risks are the two that a purchase agreement can most directly address.
The Ranking
First: lease loss. Probability uncertain, effect severe, and a response, a closing condition, that removes most of the risk.
Second: savings shortfall. Moderately likely in part, effect enough to erase the cushion, response partial through planning.
Third: enrollment loss after rebrand. Probability unknown, effect large only beyond an 8.8 percent fall, response partial through the holdback.
Fourth: recession year. Probability moderate over five years, effect manageable, response through liquidity and an equity cure.
Fifth: rate rise. Probability moderate, effect limited to cash flow, response cheap through a cap.
How the Risks Interact
The five risks were priced one at a time, but they do not arrive one at a time. A recession would make families more likely to drop lessons during the rebrand, so Risks 3 and 4 tend to move together. A recession would also make landlords more willing to renew on fair terms, which eases Risk 1, while making lenders less patient with a covenant breach. And if enrollment falls, the savings in Risk 2 matter more, since a smaller business needs every dollar of cost reduction.
The most damaging combination is a weak first year after the rebrand together with savings that arrive late. Unit 8 will test that pairing directly: if savings never come and first-year revenue drops 6 percent, value ends up far below the price. The holdback and the savings plan are the two responses aimed at that combination, which is why both should be in place before closing rather than added later.
Risks Not Priced
Two risks were considered and left unpriced. A drowning or serious injury at a school would carry legal and reputational consequences; it is covered by insurance and by safety practices both firms already follow, and it is not changed by the acquisition. A new competitor opening near a Paddlemark school is possible, but nothing in the file suggests one is planned. Both are noted for the board.
Conclusion
The acquisition carries real risk, but the largest risks can be addressed in the deal terms. Corporate finance texts emphasize that the purpose of risk analysis is not to avoid risk but to understand which risks are worth bearing and at what price (Brealey et al., 2020). With signed lease extensions, a holdback tied to enrollment and a rate cap, the remaining risks are ones Tidewell can carry within its covenant and cash (Damodaran, 2012).
References
Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of corporate finance (13th ed.). McGraw-Hill Education.
Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset (3rd ed.). Wiley.
Sirower, M. L. (1997). The synergy trap: How companies lose the acquisition game. Free Press.
The Purdue Global FI499 Unit 7 instructions
Unit 7 of FI499 asks for a risk assessment of your capstone recommendation. Start from the margins the risks will be measured against, such as the value cushion over price and covenant headroom. For each risk, state its trigger and the evidence for it in the case file, then price its effect in the unit that fits its mechanism: lost value, a switching point or covenant headroom. Name a response for each. Rank the risks by what they could cost the owners, explaining the ranking. Consider how risks interact, since some tend to arrive together. Note any risks you considered and chose not to price, with reasons. Conclude by linking the most serious risks to deal terms. Avoid invented probabilities. Cite corporate finance texts and research on acquisition savings in APA 7.
Inside the FI499 Unit 7 example
The sample measures against a $1.54 million cushion and debt of 2.74 times combined EBITDA. Two building leases expiring after year three carry the largest effect, answered by signed ten-year extensions as a closing condition. Savings depend on joint purchasing, one fewer manager and shared software, with owners and dates assigned. Enrollment risk gets a $1.5 million holdback and a plan to keep instructors. A recession leaves the covenant intact unless EBITDA falls about 21.6 percent; an equity cure and $1.0 million of cash respond. A rate cap covers the floating loan. The highlighted sentence ranks the risks, an interaction section pairs a weak rebrand with late savings, and safety and new competitors are noted but left unpriced.
Where the points sit in the FI499 Unit 7 rubric
Risk assessments in FI499 earn points for pricing each risk in terms that fit how it would hurt the deal. Graders check that triggers are grounded in the case file, that effects are quantified in value, switching points or covenant headroom, and that each risk has a specific response. The rubric rewards a ranking explained by cost to owners, attention to risks that move together and a candid note on risks left unpriced. Linking the largest risks to purchase terms shows the analysis will shape the recommendation. Assessments that list generic risks, attach invented probabilities or stop at "monitor closely" lose points. Research on acquisitions helps calibrate risks such as overestimated savings.
Common FI499 Unit 7 mistakes, and how to avoid them
Weak Unit 7 assessments list risks without a single number attached. Others multiply guessed probabilities by guessed losses and present the result as precise. Many measure every risk in value even when a covenant breach in one bad year is the real danger. Responses are generic. Interactions between risks, such as a recession worsening enrollment losses, are ignored. If your capstone faces regulatory, currency or customer concentration risk instead, each can be priced the same way against the recommendation's own margins.
Get an FI499 Unit 7 example written to your instructions
Say which decision your capstone is heading toward, then add the Unit 7 prompt, the rubric and your current valuation. The assessment prices each risk against your own model in dollars of value or covenant headroom, ranks the list and ties every response to a specific deal term. A first sample costs nothing and usually lands in 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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FI499 Unit 7 questions, answered
What is a holdback?
A portion of the price, here 1.5 million, withheld at closing and paid to the seller later only if a stated condition is met, in this case member counts holding at an agreed level. It shifts part of the attrition risk back to the party who knows the customers best. The sample uses it as one of three responses built into the deal.
Where can I find a free FI499 Unit 7 sample paper?
This page holds a full FI499 Unit 7 risk assessment pricing five risks to a composite swim school acquisition, with responses, a ranking, interactions and APA 7 references.
Why is losing the leases ranked first?
Because it alone would push value $3.36 million below the price, and it can be largely removed by making signed extensions a condition of closing. A risk that is both severe and fixable belongs at the top of the list.
Why measure the recession against the covenant?
Because one bad year changes long-run value only slightly but can breach the lender's test in the year it happens. The sample shows debt rising to 3.12 times EBITDA, under the 3.5 limit, with a breach needing a fall of about 21.6 percent.
Why are some risks left unpriced?
Because pricing them would add numbers without evidence. An injury at a school is covered by insurance and safety practice and is not changed by the deal, and nothing in the file suggests a competitor is planning to open nearby.