A growth equity fund makes a $10 million investment in XYZ firm and, in return, gets...

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A growth equity fund makes a $10 million investment in XYZ firm and, in return, gets 3 million shares of stock. After the transaction, the XYZ has 12 million shares outstanding, $8 million of debt and $4 million of cash. XYZ had an EBITDA of $5 million in the 12 months prior to funding. Assume that at the end of 4 years, the EBITDA of the company is $10 million, and the debt has been reduced to zero and the company has cash on hand of $10 million. No distributions were made to the shareholders during this period. The company is sold for a multiple 50% higher than used to value the company when the growth equity fund invested. There is no other fee or expenses on the sale paid by the company, but no other fees or expenses associated with the transaction. Please answer the following: a. What was the pre money equity valuation placed on XYZ when the fund invested? b. What was the post money equity valuation of XYZ's? c. What is the post-money TEV/EBITDA multiple upon funding by the fund? d. How much does the growth equity Fund receive of the cash distributed upon sale? e. How much does the entrepreneur receive upon sale if he is the only other equity owner? f. What is the fund's gross IRR for this investment? g. Now assume a dividend to all shareholders of $20 million (split pro-rata based on ownership) was received at the end of year 2 with no other changes in cash flows. What would be the fund's gross IRR for this investment? A growth equity fund makes a $10 million investment in XYZ firm and, in return, gets 3 million shares of stock. After the transaction, the XYZ has 12 million shares outstanding, $8 million of debt and $4 million of cash. XYZ had an EBITDA of $5 million in the 12 months prior to funding. Assume that at the end of 4 years, the EBITDA of the company is $10 million, and the debt has been reduced to zero and the company has cash on hand of $10 million. No distributions were made to the shareholders during this period. The company is sold for a multiple 50% higher than used to value the company when the growth equity fund invested. There is no other fee or expenses on the sale paid by the company, but no other fees or expenses associated with the transaction. Please answer the following: a. What was the pre money equity valuation placed on XYZ when the fund invested? b. What was the post money equity valuation of XYZ's? c. What is the post-money TEV/EBITDA multiple upon funding by the fund? d. How much does the growth equity Fund receive of the cash distributed upon sale? e. How much does the entrepreneur receive upon sale if he is the only other equity owner? f. What is the fund's gross IRR for this investment? g. Now assume a dividend to all shareholders of $20 million (split pro-rata based on ownership) was received at the end of year 2 with no other changes in cash flows. What would be the fund's gross IRR for this investment?

Answer rating: 100% (QA)

SOLUTION a The premoney equity valuation can be calculated as follows The growth equity fund invested 10 million and received 3 million shares so the ... View the full answer