How to best answer this question in an interview? Thanks!
Company has 100 EBITDA in year 0, and is expected to grow EBITDA to 120 in year 5 and decreases debt by 25 each year. Assume the entry multiple is 5x EV/EBITDA and exit multiple is 5.5x. How much additional equity value is created? How much does EBITDA growth, multiple expansion and de-leverage contribute respectively?
| +108 | What’s “the path” now? | 43 | 59m |
| +55 | Don’t go into finance unless you really like markets / deals / investing | 11 | 2d |
| +43 | Why would anyone do PE in long term in 2026? | 11 | 5h |
| +39 | RO / Rerecruit / Bet on Myself | 10 | 20h |
| +34 | 3rd Year IB Analyst, Top Bucket, Still No PE Offer. What Would You Do? | 16 | 29m |
| +28 | Army Officer Seeking Advise on transition to PE | 9 | 2d |
| +25 | Is Everyone Too Bearish on PE? | 5 | 18h |
| +24 | Is This Normal in LLM PE | 10 | 1d |
| +21 | Striking out in last rounds | 2 | 4h |
| +20 | On Cycle Preparation | 6 | 2d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
.
Break it down into three steps:
$125m + $60m +$100m = $285m in equity value created
Entry EV = $100 x 5x = $500m
Exit EV = $120 x 5.5x = $660m
$660m - $500m = $160m + $125m in debt reduction = $285m in equity value created
Thanks for your detailed reply :)
What confused me in the first place is the equity value created by multiple expansion. Why is it not $100* .5x? （the underlying assumption here is how much value created if only the multiple expands and no changes in EBITDA and debt). Thanks!
Libero cum ut nisi. Corporis aliquam enim consequatur maxime explicabo. Qui possimus ratione dolores architecto suscipit blanditiis nostrum. Voluptas cum nemo at veniam. Porro est tempora quibusdam ut facere temporibus. Vitae quia impedit aut voluptate officia facilis odio.
Quidem et itaque aut nihil enim eos. Tempore aperiam fugiat minus consequuntur temporibus perspiciatis. Porro error ex quia nam temporibus ut optio. Architecto dignissimos qui sunt quia.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...