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You have been asked to estimate the rate of return to investors in a leveraged buyout. The key calculation is the exit valuation. You will base the exit valuation on the concept "Equity=Enterprise Value You will assume exit enterprise value is performed at a multiple of EBITDA which equals the entry valuation. The facts are as follows:
Company
Company purchase price: Initial debt of company: Initial cash of company: Initial EBITDA of company: Growth rate of EBITDA: Debt: Annual amortization: Management equity investment: Sponsor equity investment (convertible preferred) Management bonus: After At With cash
Financing
15% 85%
(with
5%
Exit
dividend)
Exit enterprise value Exit debt Exit cash Exit equity value
30% 32%
0 -170 -30
1 8.5 0
2 8.5 0
3 8.5 0
4 8.5 0
5 559 121