Paper LBO Solution
Saw an interesting paper LBO on YT shorts w no solution, wondering what you guys get
Assumptions:
- 20% IRR in 5 years
- exit NWC of $60
- exit equity of 600
- exit adj ebitda of 120 with a 10x multiple
- cumulative lfcf of 300
- entry/exit multiples are equal
no debt paydown
What is the entry EBITDA? I have a solution but not 100% sure if its correct so wanna see how you guys go about it.
This is all the information? NWC only given in the final year?
Pretty sure you don't need to model out the holding period
114
Can you please explain how you’re doing it? How are you factoring in the NWC
Why do you think you need to factor in the NWC?
20% IRR in 5 years is 2.5x
600/2.5 = 240 starting equity
1200 exit + 300 fcf - debt = 600
Debt is 900
Purchase price = 900+240 = 1140
1140/10 = 114 EBITDA
this doesn’t factor in WC (wasn’t sure how to), but if you assume it winds down from 60 to 0 then FCF would technically be 360 instead of 300 and the same calculations would yield 120 entry EBITDA
That’s what I got. Lfcf takes into account any change in nwc. So it’s a red herring
If so, I see how you get 84 but think the 114 guy is right
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