Question of the day
2026-10-31
Build a Sources & Uses with real frictions: EV $1,000 (EBITDA $120, cash-free debt-free), $600 TLB at 5.0x issued at 98 with 2% financing fees, $20 transaction fees, $10 minimum cash. What's the equity check?
Answer it out loud first — like you would in the room. Then check yourself:
Reveal the model answer
Model answer
Uses: purchase enterprise value 1,000 + transaction fees 20 + financing fees (2% x 600 = 12) + OID (2 points x 600 = 12) + minimum cash 10 = 1,054 total. Sources: TLB at face 600 + sponsor equity plug = 1,054, so equity check = 454. Notice the frictions added 54 to the check versus the naive 'EV minus debt = 400' answer — about 13% more equity, which directly drags MOIC and IRR. Also note the balance sheet at close: gross debt 600, cash 10, so net debt is 590 and net leverage is 590/120 ~ 4.9x even though the deal was marketed at 5.0x gross. Fees and OID are why quick paper-LBO math slightly overstates real returns.
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