Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A private equity firm XYZ performs a leveraged buyout in which they purchase all equity and debt of company ABC for $ 5 billion. XYZ

A private equity firm XYZ performs a leveraged buyout in which they purchase all equity and debt of company ABC for $5 billion. XYZ finances this purchase with $1 billion of their own capital and borrows the remaining $4 billion at 5% interest. In one year (unusually short for LBO), XYZ pays off the debt and sells ABC for $7.5 billion. Which of the follow is closest to XYZs return on their invested capital (the $1 billion)? Hint: draw a balance sheet.
(a)100%(b)200%(c)250%(d)300%
(e) None of the above

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions