A private equity investor has developed the following financial information for an acquisition target:

		Expected	Projected	Projected	Projected	Projected	Projected
		2018	2019	2020	2021	2022	2023
Revenue		214.5	227.4	241.0	255.5	270.8	287.0
EBITDA		47.2	50.0	53.0	56.2	59.6	63.2
D&A		10.6	10.8	11.0	11.3	11.6	12.0
EBIT		36.6	39.2	42.0	44.9	48.0	51.2
CapEx		11.0	11.2	11.4	11.7	12.0	12.4
NWC		13.9	14.8	15.7	16.6	17.6	18.7
Tax Rate	21%

Based on comparables, the sponsor believes that it will need to pay 9.0x 2018 EBITDA to be the successful bidder. It further believes that, as of year-end 2023, exit multiples will remain constant. The sponsor is planning to finance the deal with a $250 million five-year Term Loan B (non-amortizing/bullet maturity) and the balance with equity. Total interest cost on the bank debt is estimated to be 7.2% per annum. The acquisition is expected to close on 12/31/2018.

Assuming the sponsor exits on 12/31/2023 and the lenders require that all interim FCFE be retained in the company (and used to offset net debt at exit), what is the IRR to the sponsor?

Group of answer choices

14.7%

22.0%

17.6%

19.1%

20.5%

Answer rating: 100% (QA)

To calculate the Internal Rate of Return IRR for the private ... View the full answer