LBO & Paper LBO
Run a quick ability-to-pay: exit equity is projected at $900 in year 5, the sponsor requires a 20% IRR, lenders will provide 5.0x on $100 of EBITDA. What's the maximum price?
Model answer
Step 1 — maximum equity check: required MOIC at 20% over 5 years is 1.2^5 = 2.49, so max equity today = 900 / 2.49 ~ 360. Step 2 — maximum debt: 5.0 x 100 = 500. Step 3 — maximum enterprise value =…
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