Homework Answers
Last 12 month EBITDA = $25million
Entry mutliple = 8x
Enterprise Valuation (EV) = 8*$25million = $200million
leverage = 5x which implies debt/equity = 5
equity = $200million/(1+5) = $33.33million
debt = $166.67million
At the time of exit, $100million is available for debt paydown. However, still $66.67mn in debt will remain to be paid off
Return = 4x which implies 75% of business should now be valued at 5x investment (investment + return)
75% of business = $33.33mn*5 = $166.67mn
but this is only 75% of business as 25% has been given to management. Also, additional 66.67mn is required to pay off debt
Therefore, selling price of business = 166.67 / 0.75 + 66.67 = $288.9million
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