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Secured hirevue, it was light got asked TMAY, strength and weakness, walk me through $10 dep and

XYZ Corporation is a manufacturing company experiencing financial distress. The company has $300 million in total debt and $200 million in equity. Due to declining revenues and high fixed costs, the company is considering restructuring options. The proposed restructuring plan involves:

  1. Debt Reduction:

    • XYZ Corp. will exchange $150 million of its debt for equity, reducing the total debt to $150 million.
  2. Equity Dilution:

  3. Operational Improvements:

    • After restructuring, operational improvements are expected to increase EBITDA by 20%.
    • Pre-restructuring EBITDA is $50 million.
  4. Interest Rate Adjustment:

    • The new debt will have an interest rate of 7% (down from the current 10% on the total debt).
  5. Tax Rate:

    • The corporate tax rate is 25%.
  6. Valuation Multiples:

    • The industry-average EV/EBITDA multiple is 8x.

Questions:

  1. Calculate the pre-restructuring Enterprise Value (EV).
  2. Determine the new EBITDA after operational improvements.
  3. Calculate the post-restructuring EV using the industry multiple.
  4. Calculate the value created from the restructuring.
  5. Determine the new equity value and the impact on existing shareholders.
 

Let’s give it go. 
 

1. 500MM (300 debt + 200 equity)

2. 60MM (50*1.2)

3. 480MM (60*8)

4. 130MM? (480-150=330 equity value - 200 original equity value)?

5. 330M? New equity value for original equity holders is 330/2 = 165?

 

For 5. Would the new equity value not be 400? Since current equity holders will be diluted by 50% post-debt swap, that means that the old equity (200m) is worth 50% of the new total.

 

Where? Can't find soph summer posting, only the main one from which I got rejected for grad year.

 

The main posting says second or third year summer, so I'm assuming the same one is being used for sophomore summer

 

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