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Performs a leveraged buyout

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A private equity firm XYZ performs a leveraged buyout in which they purchase all equity and debt of company ABC for $5 billion. XYZ finances this purchase with $1 billion of their own capital and borrows the remaining $4 billion at 20% interest. In one year (unusually short for LBO), XYZ pays off the debt and sells ABC for $7.5 billion. Which of the follow is closest to XYZ's return on their invested capital (the $1 billion)? Hint: draw a balance sheet.

Reference no: EM132473621

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