Few Interview Questions
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Company A has 30x P/E and its net income has a annual growth of 30%; whereas Company B has 10x P/E and its net income has an annual growth of 10%. Which Company will you invest?
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A Company's EBITA is 100mm, and you are purchasing the Company at Year 0 at 10x EV/EBITDA. Assume the Company has no debt and EBITDA grows 10% annually and the cash payout is 5% of the EV annually. Exit in Year 5 with the same multiple 10x. What's the IRR without using a calculator?
Hi robertMondavi, check out these resources:
Any pros willing to rescue this discussion? HEvy jsb.90 Shane.gong
I hope those threads give you a bit more insight.
Bump it up
Indifferent, since each has a PEG of 1x.
15%, because you get 5% back in cash payments each year plus 10% on the EV growth each year. Similar to a bond trading at a discount that pays you 5% interest each year plus 10% principal appreciation each year.
Here are my thoughts on this question, and please correct me if I'm wrong. If you buy Company A at 30x P/E, its income will grow 30% for the next 3 years, where as you buy Company B at 10x P/E, its income will only grow 10% for the next three years. If earning for each company at year zero is the same, then essentially you are paying 3x the price of Company B for Company A, however, 3 years later, Company B's income will grow (1.3)^3, where as Company A's income will only grow (1.1)^3, so now the income is only a factor of (1.3)^3/(1.1)^3=1.65, and now Company A will be sold at 1.6530 and Company B will be sold at 110. So wouldn't Company A generates a higher return in this case?
Would the IRR be little higher or lower than 15% depending on the specific cash payout time?
2.15%
As someone who quite literally never looks at public companies in lower MM buyout, these questions spooked me because honestly I forgot the "theoretical" way of doing it. Having said that, your answer is basically identical to how I would answer having not studied in quite some time. Makes me feel a little better.
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