Hello all,
Interview question:
I am asked to liquidate a portfolio of companies. The portfolio has two companies: 1) Japanese company: no debt + normal cash flows 2) US company: debt (70%) & equity (30%) + normal cash flows
After talking to a few investors in the market, I was told the following: - Companies of these kind could only be sold based on IRR not mulitples - Japanese companies sale IRR = 8% to 9 % (unlevered IRR) - US companies sale IRR = 20% - 22% (levered IRR)
The interviewer asked me how I would price each company based on the given information?
My question for you all is: What if instead of giving me 8% to 9% unlevered Sale IRR the interviewer gives me a 17% - 18% levered sales IRR, how would I go about calculating a price with just this info? Is it even possible given the fact that the cash flow for the Japanese company is not levered?
and the reverse for the US company...
Essentially, with a levered sales IRR is it possible for me to guesstimate, logically, what an unlevered sale IRR might be? (logically because they will need me to explain my rationale for the answer)
I hope my question is clear but if not, please reply and I will clear it up.
Thank you.
Regards, Tim
