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You are an analyst at a private equity firm. You have been tasked with analyzing a leveraged buyout opportunity of a retail company.

Key Assumptions:

o The fund expects to hold the company for five years.

o Comparable analysis puts the company value at 5xEBITDA

o We have been able to negotiate a Term A loan at 3.5x LTM EBITDA (10% interest rate)

o We have been able to negotiate a high-yield loan for 0.5x LTM EBITDA at a 15% interest rate.

o Transaction fees are assumed to be 0.5% of the purchase price.

Company Assumptions:

• The company has an LTM EBITDA of $10 million.

• Management expects the company’s EBITDA to grow at 5% per year

• The company has 250k of net debt on its balance sheet.

• The company has a $40 million asset that will be evenly depreciated over 10 years.

• The company will maintain CAPEX spend at $1.1 million per year and will be depreciated over 10 years.

• The company’s working capital is projected at 15 days off of EBITDA

• The tax rate is 40%

Show your work done and answer the following questions:

a)what is the purchase price of this firm?

b)what is the equity amount used to purchase this firm?

c)what is the D&A of year 3?

d) what is the changes in WC of year 4?

e) what is the EBIT of year 5?

f) what is the grand total UFCF of the firm?

g) what is the amount of interest after tax of high yield loan?

h) what is the final debt of the firm?

i) what is the net exit equity value the firm?

j) What is the expected IRR of the firm?


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