Reference no: EM133114606

XYZ Private Equity Partners purchases ABC Target Company for 5.0x Forward 12 months (FTM) EBITDA at the end of Year 0.

• The debt-to-equity ratio for the LBO acquisition will be 60:40.
• Assume the weighted average interest rate on debt to be 10%.
• ABC expects to reach $100 million in sales revenue with an EBITDA margin of 40% in Year 1.
• Revenue is expected to increase by 10% year-over-year (y-o-y).
• EBITDA margins are expected to remain flat during the term of the investment.
• Capital expenditures are expected to equal 15% of sales each year.
• Operating working capital is expected to increase by $5 million each year.
• Depreciation is expected to equal $20 million each year.
• Assume a constant tax rate of 40%.
• XYZ exits the target investment after Year 5 at the same EBITDA multiple used at entry (5.0x FTM
  EBITDA).
• Assume all debt pay-down occurs at the moment of sale at the end of Year 5 (this eliminates the
  iterative/circular dependency between debt pay-down/cash balances and interest expense in a
  computer-based LBO model). 

Using the information provided above, answer the following questions:

a. Calculate the price of ABC

b. Calculate the amount of debt and equity financing used (sources and uses of funds)

c. Calculate FCFs

d. Calculate Exit Value and IRRs