Practice

A company has $300M of Subordinated Notes with a declining call premium schedule: 105% of principal in Year 3, and 100% (no premium) from Year 8 onward. If a PE firm exits in Year 3 with an Exit Enterprise Value of $1,000M, versus waiting until Year 8 when the Exit Enterprise Value has grown to $1,150M, calculate the Exit Equity Proceeds in each scenario. Assume no other Debt besides the $300M Notes and no Cash generated in either case.

A PE firm acquires a $150M EBITDA company at a 7.0x purchase multiple, using 50% Debt. It can't find a buyer after 3 years, so it takes the company public instead and sells off its stake evenly across Years 3, 4, and 5. By the end, EBITDA has grown to $175M, all the initial Debt has been repaid, and the average sale multiple across those years is 9.0x. Estimate the approximate IRR.

A PE firm acquires a $100M EBITDA company at a 10.0x purchase multiple, using 50% Debt. In Year 5, EBITDA has grown to $160M and the company is sold at a 9.0x exit multiple. The company repaid $300M of the initial Debt over the holding period and generated no additional Cash. Estimate the approximate IRR.

Continuing the same deal: instead of holding steady at 9.0x, the company's EBITDA multiple declines by roughly 10% per year in Years 4 and 5 (from 9.0x to about 8.0x to about 7.0x). Estimate the new average exit multiple and the resulting IRR.

An LBO has $500M of Investor Equity and a 10% options pool. At exit, the Exit Equity Value (before accounting for the options) is $1,000M. Using the precise method that grosses up the share count, calculate the Cash from Management Options, the Equity to Management Options, and the PE firm's final Exit Equity Proceeds.

An LBO's Investor Equity is $600M, and without any Dividend Recap, the Exit Equity Proceeds in Year 5 would be $1,500M. Instead, the PE firm executes a $500M Dividend Recap in Year 3, reducing the Year 5 Exit Equity Proceeds to $1,000M. Estimate the approximate IRR using the average exit year method, and compare it to the no-recap baseline.

A PE firm wants a 25% IRR (~3.0x multiple) over 5 years. It plans to sell the company for an Exit Enterprise Value of $1,800M, using a 50/50 Debt/Equity split with no Debt repaid and no extra Cash generated during the hold. What's the maximum Purchase Enterprise Value it could pay?

A PE firm buys a company for $200M EBITDA at an 8.0x purchase multiple, using $800M of Debt and $800M of Investor Equity. By Year 5, EBITDA has grown to $280M and the exit multiple is 9.0x. The company has repaid $300M of Debt and generated no extra Cash. Calculate the Returns Attribution: how much of the total return comes from EBITDA Growth, Multiple Expansion, and Debt Paydown.

A PE firm invests $900M total in a deal: $300M in Preferred Stock with a fixed 12% coupon (accrued as PIK, paid at exit) and $600M in Common Equity. At exit in Year 5, the Common Equity portion is worth $2,100M (a 3.5x multiple on the Common investment). Calculate the Preferred Stock's exit value using simple, non-compounded accrual, and the total blended MoM multiple on the full $900M investment.

A company has two Debt tranches: a Term Loan with a $300M current balance amortizing 8% of its original $400M principal annually, and Subordinated Notes with a $200M balance and no amortization or early repayment allowed. After mandatory repayments, the company has $60M of Cash Flow Available for Debt Repayment, with a 100% cash flow sweep applied entirely to the Term Loan. Calculate the Term Loan's mandatory repayment, its optional repayment, and its ending balance.

A company has $200M of accumulated Net Operating Losses (NOLs) it can use to shelter future taxable income, but tax rules cap usage at $40M per year. In Year 1 post-deal, the company's Pre-Tax Income is $70M, and the tax rate is 25%. Calculate the company's cash taxes paid in Year 1, with and without the NOL shield, and the resulting cash tax savings.

The Investor Equity in an LBO is $450M, and the Exit Equity Proceeds in Year 5 would normally be $1,080M. Instead, the PE firm executes a $360M Dividend Recap in Year 3, so the remaining Year 5 proceeds fall to $720M. Estimate the new IRR using the average exit year method, and compare it to the no-recap baseline.

A PE firm is buying a $180M EBITDA company and plans to use 5.0x Debt/EBITDA split evenly between a Term Loan at 7% interest and Subordinated Notes at 10% interest. Assuming EBITDA stays flat in Year 1, calculate the company's EBITDA/Interest coverage ratio.

A sponsor buys a company for $500M (10x EBITDA of $50M), funded with 60% debt / 40% equity. In year 5, EBITDA has grown to $65M, debt has been paid down to $150M, and the exit multiple is still 10x. What's the IRR and MOIC?

A Term Loan starts Year 1 with a $500M balance and a 6% interest rate. In Year 1, the company repays $80M of principal (interest is calculated on the beginning-of-period balance). In Year 2, strong cash flow lets the company repay another $100M of principal, still at 6% on the Year 2 beginning balance. Calculate the Interest Expense in both Year 1 and Year 2, and the ending Term Loan balance after Year 2.

A company's Term Loan has a $500M starting balance and amortizes 10% of its original principal annually. Beginning Cash is $40M, Free Cash Flow for the year is $150M, Minimum Cash required is $50M, and the cash flow sweep is 50%. Calculate the mandatory repayment, the optional (swept) repayment, and the Term Loan's ending balance.

A private company has $220M of EBITDA and is acquired at a 9.5x multiple in a cash-free, debt-free deal. New Debt is $950M at face value, with $15M in financing fees. Minimum Cash required is $40M, and legal and advisory fees total $20M. Calculate the required Investor Equity and the Debt's initial book value on the Balance Sheet.

A company's agreed Purchase Enterprise Value is $1,000M, with a Working Capital target of $80M at deal close. At close, the company's actual Working Capital is only $55M. Calculate (a) the adjusted Purchase Enterprise Value line on the Uses side, (b) the separate Working Capital funding entry, and (c) confirm the PE firm's total payment is unchanged.

A waterfall structure gives management (Investor Group A) 10% of proceeds up to a 15% IRR, then 20% of proceeds above a 15% IRR (with the PE firm, Investor Group B, receiving the rest each tier). The deal generates $600M in Exit Equity Proceeds, corresponding to an 18% IRR. The proceeds level corresponding to exactly a 15% IRR is $500M. How much does each investor group receive?

A deal's stub period requires estimating December 31 Balance Sheet values by interpolating between the prior and next annual data points, using a stub fraction of 0.753. Inventory is $180M at the start of the window and $210M at the end; Accounts Payable is $90M at the start and $99M at the end. Calculate the interpolated December 31 balance for both line items, and the resulting net Working Capital impact versus using the start-of-window figures.

A company's Year 0 Revenue is $500M, from 10 million units sold at a $50 average price. In Year 1, it sells 11 million units at an average price of $53. Attribute the total Revenue growth between the Volume effect and the Pricing effect.

A private company has $180M of EBITDA and is being acquired at a 9.0x EBITDA multiple in a cash-free, debt-free deal. New Debt will be $700M. Minimum Cash required is $30M. Transaction and financing fees total $25M. Calculate the required Investor Equity.