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Question - You have invested $1.2 million for 25% equity stake in a new venture. Current sales are $11.1 million and earnings before depreciation, interest and taxes (EBDIT) are 10% of sales. You expect to recover your investment plus return in four years via the sale of the company at an expected exit EBDIT multiple of 8x. No further equity issues are contemplated but the company will have $6 million of debt at exit time. Fees and expenses will amount to 4% of the sale price of market capital.
Required -
(i) What growth rate of sales is needed in order to provide you with a 50% return?
(ii) What return will you attain if sales grow at half the required rate calculated in (i) and the exit EBDIT multiple is only 6.5x?
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