THIS QUESTION HAS ALL THE INFO IN THE PRACTICE SET. Need help with this question:

I am considering undertaking an LBO. Here are the stats:

Shares outstanding: 1 billion Offer price per share: $13.50 Existing target debt: $1.5 billion Existing target cash: $0.5 billion Bank financing available for my buyout: $9.5 billion

EBITDA of target: $2 billion (no growth)

Assumed exit multiple: 7.25x EBITDA Debt at time of my exit: $0 Hold period: 5 years

Based on the above (and assuming that existing debt needs to be refinanced but that I can use the existing cash to help fund the deal), what is the expected IRR on this deal? (Hint: To start, build a sources and uses table to calculate the required equity)

(a) 8.3% (b) 31.4% (c) 23.7% (d) 13.6% (e) Not enough information to calculate