M16-01-LBOModel

Model16-01ALBOModel–LoanAmortization,5YearPeriodBankLoanAmortizationLoan$1,800,000InterestRate9%Payments$462,766Year1Year2Year3Year4Year5Interest162,000134,931105,42673,26538,210Principal300,766327,835357,341389,501424,556Balance1,499,2341,171,398814,058424,5560InsuranceCompanyLoanAmortizationLoan$0InterestRate16%Payments$0Year1Year2Year3Year4Year5Interest00000Principal00000Balance00000TotalLoanAmortizationYear1Year2Year3Year4Year5Interest162,000134,931105,42673,26538,210Principal300,766327,835357,341389,501424,556Balance1,499,2341,171,398814,058424,5560BeginningYearBalance1,800,0001,499,2341,171,398814,058424,556%Interest9.00%9.00%9.00%9.00%9.00%1Model16-01BLBOModel–Pro-FormaCashFlows,Years1to5Initialearningsbeforeinterestandtaxes(EBIT)650,000GrowthrateofEBIT0%Taxrate40%Grossplant&equipment2,400,000Depreciationrate(%ofgrossplant&equipment)20%Year1Year2Year3Year4Year5EBIT650,000650,000650,000650,000650,000-Interest*162,000134,931105,42673,26538,210EBT488,000515,069544,574576,735611,790-Taxes195,200206,028217,830230,694244,716NI292,800309,041326,744346,041367,074+Depreciation480,000480,000480,000480,000480,000CFBDR**772,800789,041806,744826,041847,074-Principalrepaid*300,766327,835357,341389,501424,556Additiontocash472,034461,206449,404436,540422,518*FromModel16-01A**CFBDR:Cashflowbeforedebtrepayment.2Model16-01CLBOBalanceSheetAnalysis,Years1to5Equitypositionofinsurancecompany0Managementteamequity200,000Requiredrateofreturntoinsurancecompany0%Year0Year1Year2Year3Year4Year5Cash(fromModel16-01B)*-472,034933,240###########################Othercurrentassets,net1,0001,0001,0001,0001,0001,000Totalcurrentassets1,000473,034934,240###########################Property99,00099,00099,00099,00099,00099,000Plant&equipment,gross######################################################Less:reserve500,000980,000####################################Plant&equipment,net##################940,000460,000(20,000)(500,000)Totalassets######################################################Debt###########################814,058424,556-Equity200,000492,800801,841###########################Totalclaims######################################################%debt90%75%59%42%22%0%EquityAnalysisPreviousequity200,000492,800801,841##################Add:netIncome292,800309,041326,744346,041367,074Newequitybalance492,800801,841###########################CashBalanceAnalysisNetincome292,800309,041326,744346,041367,074Add:depreciation480,000480,000480,000480,000480,000772,800789,041806,744826,041847,074Less:debtrepayment300,766327,835357,341389,501424,556472,034461,206449,404436,540422,518Add:Previouscashbalance-472,034933,240##################Cashaccount472,034933,240###########################Compoundedannualgrowthrateofbookequity55.9%Paymentonequityinteresttoinsurancecompany**0Remainingequityformanagement1,841,701*Couldbeusedforadditionalinvestments**(EquityPositionofInsuranceCompany)x(1+RequiredRateofReturn)53Model16-01DChangeinWorkingCapitalCalculationYear0Year1Year2Year3Year4Year51.CurrentAssets(fromModel16-01C)1,000473,034934,240###########################2.CurrentLiabilities*300,766327,835357,341389,501424,556-3.WorkingCapital=(1)-(2)(299,766)145,198576,899994,142##################4.ChangeinWorkingCapital=D(3)444,965431,701417,243401,485847,074*Debtdueinoneyear(fromModel16-01A)4Model16-01ECapitalCashFlowModel(CCF)EBITandInterestExpenseYear1Year2Year3Year4Year5EBIT650,000650,000650,000650,000650,000Interest(i)162,000134,931105,42673,26538,210CapitalCashFlowsYear1Year2Year3Year4Year51.EBIT(1-T)390,000390,000390,000390,000390,0002.+Depreciation480,000480,000480,000480,000480,0003.–CapitalExpenditures000004.–ChangeinWorkingCapital444,965431,701417,243401,485847,0745.FreeCashFlowsUnleveredFirm425,035438,299452,757468,51522,9266.+InterestTaxShield(iT)64,80053,97242,17029,30615,2847.CapitalCashFlow489,835492,272494,927497,82238,2108.DiscountedCapitalCashFlow*433,483385,521343,009305,32320,7399.SteadyStateTaxShield(SSTS)010.Terminalvalue**4,017,000ComponentsofValueAssumptionsPVCapitalCashFlows1,488,075Risk-FreeRate(Rf)6%PVTerminalValue2,180,267RiskPremium(RP)7%AssetBeta(ba)1.00TotalFirmValue3,668,342ExpectedAssetReturn(ka)13.00%Less:Pre-ExistingDebt1,800,000Terminalgrowthrate(g)3%TotalEquityValue1,868,342TaxRate(T)40%Notes:*Discountedattheexpectedassetreturnrate=ka=Rf+RP(ba)**TerminalValue=[EBIT5(1-T)+SSTS](1+g)/(ka–g)=(390000+0)(1+0.03)/(0.13-0.03)=40170006