Your local electrician runs a successful electrical contracting firm and has been in business for many years. Operating profit is currently $50,000 and average yearly depreciation is 10% of total assets today of $1,000,000, both operating profit and assets are growing at 4% per year. The owner turned 45 today and looks forward to retiring at 65. His current retirement savings are $300,000 and he targets a savings amount at retirement of $3,000,000 which includes selling the firm at a price-to-EBITDA (P/EBITDA) multiple of 4.5 X, at retirement. He asks you to calculate the annual savings required beginning today to meet his goals including a payout of retirement funds once he retires. He sees his life expectancy as 90 years and will take an equal yearly retirement draw upon retiring (on his 65th birthday) and each year thereafter. You research the S&P 500 and deem 5.0% to be an achievable return over the investment horizon. Calculate all required intermediate calculations, (equal) savings and payout amounts and provide a complete schedule of cash flows. After completing, provide a Data Table of the savings required versus a P/EBITDA multiple between 3.5 and 5.5 in steps of 0.5.

Answer rating: 100% (QA)

SP 500 return 5 PEBITDA multiple 35 Savings required 1000000 PEBITDA multiple 40 Savings required 20... View the full answer