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Lobby Ltd is the target of an LBO. It has EBITDA of $150 million. A private equity group buys Lobby at 4 times EBITDA. The purchase is financed by $320 million debt and the remaining is equity investment by the private equity group. Five years later, EBITDA has grow to $175 million. The private equity group sells Lobby at 5 times EBITDA to a competitor. At the time of the sale, the firm still has $320 debt outstanding. Assume cash balance is negligible.
1) What is the value of equity at exit?
A) 175M
B) 555M
C 280M
2. What is the
A) 7.84%
B) 98.2%
C) 14.7%
3) The positive IRR was due to
A) Debt amortization and multiple expansion
B) Improvement in operating performance and multiple expansion
C) Improvement in operating performance, multiple epxansion, and debt amortization
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- Beedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering. The agreement stated that Security Brokers would sell 3 million shares to the public and provide $14 million in net proceeds to Beedles. The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $490,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answers to the nearest dollar. Loss should be indicated by a minus sign. $5 per share? $ $7 per share? $ $4 per share? $Beedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering. The agreement stated that Security Brokers would sell 3 million shares to the public and provide $14 million in net proceeds to Beedles. The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $300,000. What profit or loss did Security Brokers incur if the issue were sold to the public at the following average price? a. $5 per share b. $6 per share c. $4 per shareBeedles Inc. needed to raise $14 million in an IPO and chose Security Brokers Inc. to underwrite the offering. The agreement stated that Security Brokers would sell 3 million shares to the public and provide $14 million in net proceeds to Beedles. The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $300,000. What profit or loss would Security Brokers incur if the issue were sold to the public at the following average price? Write out your answer completely. A. $6.5 per share? B.$3.5 per share?
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- Conrad Corporation plans to raise $8 million to pay off its existing short-term bank loan of $2.4 million and to increase total assets by $5,600,000. The bank loan bears an interest rate of 12 percent. The company's president owns 55% of the 4,000,000 shares of common stock and wishes to maintain control of the company. The company's tax rate is 21%. Balance sheet information is shown below. The company is considering two alternatives to raise the $8 million: (1) sell common stock at $20 per share, or (2) Sell bonds at a 12% coupon, each $1,000 bond carrying 25 warrants to buy common stock at $30 per share. Calculate the debt ratio under both alternatives Which alternative do you recommend and why? Current Liabilities $3,000,000 Common Stock, Par $0.50 2,000,000 Retained earnings 1,400,000 Total Assets $6,400,000 Total claims $6,400,000 Alternative 1: Common stock $20 Tax rate 35% # new shares 400,000 New financing…Conrad Corporation plans to raise $8 million to pay off its existing short-term bank loan of $2.4 million and to increase total assets by $5,600,000. The bank loan bears an interest rate of 12 percent. The company's president owns 55% of the 4,000,000 shares of common stock and wishes to maintain control of the company. The company's tax rate is 21%. Balance sheet information is shown below. The company is considering two alternatives to raise the $8 million: (1) sell common stock at $20 per share, or (2) Sell bonds at a 12% coupon, each $1,000 bond carrying 25 warrants to buy common stock at $30 per share. Current Liabilities $3,000,000 Common Stock, Par $0.50 2,000,000 Retained earnings 1,400,000 Total Assets $6,400,000 Total claims $6,400,000 Alternative 1: Common stock $20 Tax rate 35% # new shares 400,000 New financing $8,000,000 Par value per share $0.50 Existing Loan $2,400,000…Royal Service, a large company, has offered $100 million to purchase General Manufacturing company. Royal Service is open to numerous ways to structure the deal: a stock or an asset purchase, and they are willing to give cash or their own stock. For General Manufacturing, each of the two shareholders have a stock basis of $40 million; the adjusted basis of assets is $80 million; and there is a $50 million NOL carry-forward. Discuss the Federal tax and SALT tax consequences under all scenarios. Assume the stock of General Manufacturing is owned by 50% by an individual and 50% by a C corporation. Write an IOM providing detail numbers to Royal with your recommendations
