For the purchase of Twitter, assume that Musk borrows $25 billion and provides the remaining $21 billion in equity of his own and of investors (total $46 billion to cover the $44 billion deal value and $2 billion closing costs), and that equity holders (including Musk himself) require a return of 25% on their investment. Using information provided, calculate and discount residual (levered) cash flows to estimate Twitter’s value under three scenarios:

Musk is able to achieve a best-case scenario, with an EBITDA margin of 25%, revenue growth of 15% for the first 5 years and 10% thereafter, and an exit EV/EBITDA multiple of 25.

Musk is only able to achieve a base-case scenario, with an EBITDA margin of 22.5%, revenue growth of 12.5% for the first 5 years and 10% thereafter, and an exit EV/EBITDA multiple of 22.5.

Musk faces a worst-case scenario, with an EBITDA margin of 20%, revenue growth of 10% for the first 5 years and 8% thereafter, and an exit EV/EBITDA multiple of 20

Answer rating: 100% (QA)

To calculate the value of Twitter under the given scenarios we need to estimate the cash flows and discount them to their present value using the required return of 25 for equity holders Lets calculat... View the full answer