You are considering buying a company using leveraged buyout. The company is proj

Question

You are considering buying a company using leveraged buyout. The company is projected to have sales of 500 million each year in the three years after buyout. The cost of sales and other administrative expenses are 60% of the sale. Depreciation and amortization are 5% of the sale. Tax rate is 40%. Suppose that the change in net working capital and capital expenditure each year is zero. If you borrow 1.5 billion at interest rate of 8% per year, and you use all the cash flow to repay debt.

1. What is the EBITDA in the first year after the buyout?

2. What is the interest expense in the first year after the buyout?

3. What is the net income in the first year after the buyout?

Explanation / Answer

Answer:

1. Income Statement:

1. EBITDA in year 1: $ 200 Million.

2. Interest Expense Year 1:    $ 120 Million.

3. Net Income in Year 1: $ 33 Million.

(In million USD) Year 1 Year2 Year3 Sales 500 500 500 COGS & SG&A (% of Sales) 60% 300 300 300 EBITDA Sales - (COGS & SG&A) 200 200 200 Depreciation & Amortization (% of Sales) 5% 25 25 25 EBIT EBITDA-D&A 175 175 175 Interest 8% 120 EBT 55 Tax 40% 22 PAT 33

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.