an investor puts $50 million of equity capital into a business in exchange for a 90%...
an investor puts $50 million of equity capital into a business in exchange for a 90% equity stake. three years later, the business is sold for a $90 million transaction value, when its sold it has $15 million of debt and $3 million of cash. what is the annualized return to investor?
Homework Answers
Answer:
Investment for 90% stake = $50 million
After 3 years Business is sold for $90 million. At the time of sale the business has $15 million debt and $3 million cash.
Value realized for the business = $90 - $15 + $3 = $78 million
Value realized for 90% stake = $78 million * 90% = $70.2 million
Total Return in 3 years = Gain / Investment = ($70.2 - $50) /$50 = 40.40%
Annualized return = (1 + 40.40%) 1/3 - 1
= 11.975335%
= 11.98%
Annualized return = 11.98%
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