Practice

A company has two Debt tranches: a Term Loan with a $300M current balance amortizing 8% of its original $400M principal annually, and Subordinated Notes with a $200M balance and no amortization or early repayment allowed. After mandatory repayments, the company has $60M of Cash Flow Available for Debt Repayment, with a 100% cash flow sweep applied entirely to the Term Loan. Calculate the Term Loan's mandatory repayment, its optional repayment, and its ending balance.

An LBO's Investor Equity is $600M, and without any Dividend Recap, the Exit Equity Proceeds in Year 5 would be $1,500M. Instead, the PE firm executes a $500M Dividend Recap in Year 3, reducing the Year 5 Exit Equity Proceeds to $1,000M. Estimate the approximate IRR using the average exit year method, and compare it to the no-recap baseline.

A PE firm buys a company for $200M EBITDA at an 8.0x purchase multiple, using $800M of Debt and $800M of Investor Equity. By Year 5, EBITDA has grown to $280M and the exit multiple is 9.0x. The company has repaid $300M of Debt and generated no extra Cash. Calculate the Returns Attribution: how much of the total return comes from EBITDA Growth, Multiple Expansion, and Debt Paydown.

A PE firm acquires a $150M EBITDA company at a 7.0x purchase multiple, using 50% Debt. It can't find a buyer after 3 years, so it takes the company public instead and sells off its stake evenly across Years 3, 4, and 5. By the end, EBITDA has grown to $175M, all the initial Debt has been repaid, and the average sale multiple across those years is 9.0x. Estimate the approximate IRR.

A private company has $180M of EBITDA and is being acquired at a 9.0x EBITDA multiple in a cash-free, debt-free deal. New Debt will be $700M. Minimum Cash required is $30M. Transaction and financing fees total $25M. Calculate the required Investor Equity.

A company's Term Loan has a $500M starting balance and amortizes 10% of its original principal annually. Beginning Cash is $40M, Free Cash Flow for the year is $150M, Minimum Cash required is $50M, and the cash flow sweep is 50%. Calculate the mandatory repayment, the optional (swept) repayment, and the Term Loan's ending balance.

A Term Loan starts Year 1 with a $500M balance and a 6% interest rate. In Year 1, the company repays $80M of principal (interest is calculated on the beginning-of-period balance). In Year 2, strong cash flow lets the company repay another $100M of principal, still at 6% on the Year 2 beginning balance. Calculate the Interest Expense in both Year 1 and Year 2, and the ending Term Loan balance after Year 2.

A waterfall structure gives management (Investor Group A) 10% of proceeds up to a 15% IRR, then 20% of proceeds above a 15% IRR (with the PE firm, Investor Group B, receiving the rest each tier). The deal generates $600M in Exit Equity Proceeds, corresponding to an 18% IRR. The proceeds level corresponding to exactly a 15% IRR is $500M. How much does each investor group receive?

A private company has $220M of EBITDA and is acquired at a 9.5x multiple in a cash-free, debt-free deal. New Debt is $950M at face value, with $15M in financing fees. Minimum Cash required is $40M, and legal and advisory fees total $20M. Calculate the required Investor Equity and the Debt's initial book value on the Balance Sheet.

A sponsor buys a company for $500M (10x EBITDA of $50M), funded with 60% debt / 40% equity. In year 5, EBITDA has grown to $65M, debt has been paid down to $150M, and the exit multiple is still 10x. What's the IRR and MOIC?

The Investor Equity in an LBO is $450M, and the Exit Equity Proceeds in Year 5 would normally be $1,080M. Instead, the PE firm executes a $360M Dividend Recap in Year 3, so the remaining Year 5 proceeds fall to $720M. Estimate the new IRR using the average exit year method, and compare it to the no-recap baseline.

An LBO has $500M of Investor Equity and a 10% options pool. At exit, the Exit Equity Value (before accounting for the options) is $1,000M. Using the precise method that grosses up the share count, calculate the Cash from Management Options, the Equity to Management Options, and the PE firm's final Exit Equity Proceeds.

A company has $300M of Subordinated Notes with a declining call premium schedule: 105% of principal in Year 3, and 100% (no premium) from Year 8 onward. If a PE firm exits in Year 3 with an Exit Enterprise Value of $1,000M, versus waiting until Year 8 when the Exit Enterprise Value has grown to $1,150M, calculate the Exit Equity Proceeds in each scenario. Assume no other Debt besides the $300M Notes and no Cash generated in either case.

A deal's stub period requires estimating December 31 Balance Sheet values by interpolating between the prior and next annual data points, using a stub fraction of 0.753. Inventory is $180M at the start of the window and $210M at the end; Accounts Payable is $90M at the start and $99M at the end. Calculate the interpolated December 31 balance for both line items, and the resulting net Working Capital impact versus using the start-of-window figures.

A PE firm acquires a $100M EBITDA company at a 10.0x purchase multiple, using 50% Debt. In Year 5, EBITDA has grown to $160M and the company is sold at a 9.0x exit multiple. The company repaid $300M of the initial Debt over the holding period and generated no additional Cash. Estimate the approximate IRR.

A PE firm is buying a $180M EBITDA company and plans to use 5.0x Debt/EBITDA split evenly between a Term Loan at 7% interest and Subordinated Notes at 10% interest. Assuming EBITDA stays flat in Year 1, calculate the company's EBITDA/Interest coverage ratio.

A company's agreed Purchase Enterprise Value is $1,000M, with a Working Capital target of $80M at deal close. At close, the company's actual Working Capital is only $55M. Calculate (a) the adjusted Purchase Enterprise Value line on the Uses side, (b) the separate Working Capital funding entry, and (c) confirm the PE firm's total payment is unchanged.

A company has $200M of accumulated Net Operating Losses (NOLs) it can use to shelter future taxable income, but tax rules cap usage at $40M per year. In Year 1 post-deal, the company's Pre-Tax Income is $70M, and the tax rate is 25%. Calculate the company's cash taxes paid in Year 1, with and without the NOL shield, and the resulting cash tax savings.

A company's Year 0 Revenue is $500M, from 10 million units sold at a $50 average price. In Year 1, it sells 11 million units at an average price of $53. Attribute the total Revenue growth between the Volume effect and the Pricing effect.

Continuing the same deal: instead of holding steady at 9.0x, the company's EBITDA multiple declines by roughly 10% per year in Years 4 and 5 (from 9.0x to about 8.0x to about 7.0x). Estimate the new average exit multiple and the resulting IRR.

A PE firm invests $900M total in a deal: $300M in Preferred Stock with a fixed 12% coupon (accrued as PIK, paid at exit) and $600M in Common Equity. At exit in Year 5, the Common Equity portion is worth $2,100M (a 3.5x multiple on the Common investment). Calculate the Preferred Stock's exit value using simple, non-compounded accrual, and the total blended MoM multiple on the full $900M investment.

A PE firm wants a 25% IRR (~3.0x multiple) over 5 years. It plans to sell the company for an Exit Enterprise Value of $1,800M, using a 50/50 Debt/Equity split with no Debt repaid and no extra Cash generated during the hold. What's the maximum Purchase Enterprise Value it could pay?