Corporation Finance Question

Basic Leveraged Buyout Problem Excel

Part 1) A Private Equity firm acquires XYZ Corp., which generates $100 million in EBITDA at the time of the deal, for a 10x EBITDA purchase multiple and funds the deal with 60% Debt. (Hint: Entry Enterprise Value = EBITDA * Multiple).

The companys EBITDA grows to $150 million by Year 5, but the exit multiple (valuation at which the PE sells the XYZ Corp.) drops to 9x EBITDA. XYZ Corp. repays $250 million of Debt throughout the course of the investment and generates $50 million in extra Cash by end of Year 5 as well. Calculate the IRR of the investment when the Private Equity buyer sells XYZ Corp at the end of Year 5. (Hint: Find Entry and Exit Equity Value to calculate IRR)

Part 2) Suppose the Private Equity firm wanted to achieve a higher IRR for the investment in XYZ Corp., what are some ways to increase this deals returns?