The initial fees and expenses associated with the acquisition are $2,600,000. You have an exit strategy of five years and would sell the company after five years at the same EBITDA multiple you chose above. Assume that interest rate is 5%, the yearly capital expenditure is $1,300,000 and the tax rate is 30%.
Required:
1) Show your operating projections over the next five years and the profit projection in year 5 if you acquire the firm using leverage buyout.
Briefly explain and discuss your numbers. You want to make sure that the readers know what you are doing.
2) Conduct scenario testing by altering the choices you made above. You want to create two additional scenarios, ‘best’ and ‘worst’ scenarios. Clearly, ‘best’ scenario would be the scenario where the firm is valued more. ‘Worst’ scenario is where the firm is valued less.
Briefly explain your assumptions and repeat (1) above and show your operating projections for the next five years and the profit projection in year 5 in these two additional scenarios. Briefly explain and discuss the sensitivity of your main findings based on your scenario testing.
