Technical Questions
Hi Monkeys,
Can someone clarify the right answers to the below questions? Its questions I got in an interview but never managed to find the answer to:
1. You are investing £200 million in Company A, which has no leverage, targeting a 5-year hold period and IRR of 25%: what is the exit EBITDA (approximately) if you exit at 10x? Assume you are reinvesting all generated cash flows back into the company
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A retailer with €10 million of EBITDA is acquired at 10x LTM EBITDA using €50 million of leverage at 14% cash interest. The business had no borrowings before the deal. It accumulates enough cash to repay €20 million of the debt in year 5. The company is then sold after 5 years at 12x €15 million EBITDA. No dividends were paid. What is the money multiple?
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Sponsor invests in a distribution business, committing £100m of equity, with a view to achieving a 25% IRR over 5 years. Company management starts discussions with a bank for an unsecured facility to fund working capital. Assuming the business has no debt, and the prevailing tax rate is 20%: at what interest rate are they indifferent between accepting the facility and funding WC off the company’s balance sheet?
what is causing difficulty in these?
.
Thanks! I agree with nr 1. For number 2 my approach was this: EV is 100 (50 debt and 50 equity). Exit is initially 12 * 15 = 180. The company pays 14% interest on 50 debt which is 7 per year. Since it’s cash interest it’s paid annually and also in year 5, which means EBITDA is 15 - 7 = 8, and hence exit is actually 8 * 12 = 96. Debt was 50 and now it’s repaid with 20, so 30 at exit. At exit we have that the EV is 96 - 30 = 66 equity. 66/50= 1.3x
Interest is a red herring… it can be ignored in 2…Not to mention you’re subtracting interest from something you’re calling EBITDA…
On 3 it’s just asking at what lower interest rate for off-balance sheet asset-backed financing you’re indifferent to losing tax deduction on interest because assets likely sit in an SPV or something…it’s worded slightly oddly
Bump
1 and 2 already answered. Have you tried 3 based on comment above? Not terribly complicated
Not really getting me to an anwser, questions 3 will have to be either:
12.75%
21.25%
31.25%
36.5%
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