|
LOS p: Explain how private equity firms manage their exit routes in LBO companies.
Q1. Which of the following is the least likely source of return for the private equity owners of a leveraged buyout investment (LBO)?
A) Recapitalization.
B) Dividends.
C) Private sale.
Q2. An analyst reads the following comment in the business section of a national newspaper: “Leveraged buyout investments (LBOs) realize their return at exit by terminating the fund. Projecting the terminal value for an LBO can be done either through a multiple of sales or earnings or through discounting free cash flow.”
The comment on estimating an LBO’s terminal value from sales or earnings multiples and from discounting free cash flow, respectively, is:
Sales or earnings multiple Discounting free cash flow
A) Incorrect Correct
B) Correct Correct
C) Correct Incorrect
Q3. The Mnoyan fund is a leveraged buyout (LBO) fund with initial capital of $100 million, of which $90 million is provided by the LBO fund and $10 million by management. Profits between the fund and management are split 80% and 20%, respectively.
The fund uses an EBIT multiple for projecting terminal value. The fund is liquidated after year 4 with an operating income of $50 million in year 4 and an EBIT multiple of 10 under the most likely scenario. The fund’s debt is worth $120 million at exit.
The return at exit to management as measured by IRR is closest to:
A) 66%.
B) 40%.
C) 36%. | 
发表于 2009-3-10 13:17
| 
