Compute the IRR Suppose rA 17%, r = 5% and t=0.4. Is this a good investment?...

  

   

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Compute the IRR Suppose rA 17%, r = 5% and t=0.4. Is this a good investment? [Hint: find appropriate rate of return on equity] LBO (year 0): - EBITDA: 5 EV/EBITDA multiple: 10x - D35 => E = 15 Exit (year 5): EBITDA: 7.5 - EV/EBITDA multiple: 12x D = 20 > E = 70 Cash multiple: 70/15 = 4.7x 100 90 50 35 20 0 LBO 4.7 X Exit Equity Debt 1 2 3 EBITDA 4 EV/EBITDA multiple 5 Enterprise Value (EV) 6 Debt (D) A 7 Equity (E) 8 9 cash multiple 10 11 IRR 12 13 TE 14 Equity valuation = 70/(1+r)^5 15 16 B 4.666667 C Year 0 ENTRY 5 10 50 35 15 D Year 5 EXIT 7.5 12 90 20 70 Compute the IRR Suppose rA 17%, r = 5% and t=0.4. Is this a good investment? [Hint: find appropriate rate of return on equity] LBO (year 0): - EBITDA: 5 EV/EBITDA multiple: 10x - D35 => E = 15 Exit (year 5): EBITDA: 7.5 - EV/EBITDA multiple: 12x D = 20 > E = 70 Cash multiple: 70/15 = 4.7x 100 90 50 35 20 0 LBO 4.7 X Exit Equity Debt 1 2 3 EBITDA 4 EV/EBITDA multiple 5 Enterprise Value (EV) 6 Debt (D) A 7 Equity (E) 8 9 cash multiple 10 11 IRR 12 13 TE 14 Equity valuation = 70/(1+r)^5 15 16 B 4.666667 C Year 0 ENTRY 5 10 50 35 15 D Year 5 EXIT 7.5 12 90 20 70

Answer rating: 100% (QA)

The first step in calculating the IRR Internal Rate of Return of this leveraged buyout LBO investment is to understand the cash flows involved From th... View the full answer