LBO help: int deduction for additional debt
Hi, everyone. I assume I have 2x existing debt, and I add 3x additioanl debt on a deal. thus I have 5x debt level and I assume 4x Equity. That is 9x entry multiple.
Assume I finally accumulate $30 million FCF. I know the formula: enterprise value-debt+cash=end equity value. But what about interest expense on the additional 3x debt I raised? Certainly 5x debt incurs more interest expense than 2x debt. Should I dedect some from $30?
I know many papaer LBO tutorial assume a debt free base and will not deduct interest expense on debt when calculating exit equity value because they already deducted interest when calculating net income (EBITDA to NI). Therefore, they just need to deduct debt and add accumulate FCF to get exit equity value .
If I were given a CIM in a 30 min case study, whether I need to deduct int expense when calculating exit equity value if I assume it isn't a debt free deal?
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