Banks are financing acquisition projects, i.e. for Venture Capital funds. An exemplary project shows the following data: A VC fund purchased the target company on 1.1.2020 for a price of 300k at a Price/EBIT-multiple of 7.5x. 40% of the purchase price is funded by equity of the VC, remaining amount by bank loan at an interest of 10% p.a., collateralized by the shares of the target company. The loan will be repaid on 31.12.2023, accrual for loan repayment is planned pro rata annually. All cash flows related to the purchase will be pushed down into the target company's P&L. The target company runs operationally at annual revenues of 150k in 2020, growing each upcoming year at 4%, while operational costs in 2020 are at -110k at a future growth rate of 2% year-on-year. In 2020, EBIT is 40k. Operational interest is at -6.0k (and will be stable for the upcoming years). Tax rate is 30%. There are no other operational P/L impacts. The VC plans to sell the company on 31.12.2025 = after 6 years) at a Price/EBIT-multiple of 7.5x which was the same at purchase. Please complete the financial model of the transaction based on the xls-table below. In case of lack of data, please take a reasonable assumption for your subsequent calculation. Please calculate the planned annual profitability of the VC fund and the overall internal rate of return. As the financing bank, what is your recommendation in respect to the transaction and its risks and benefits? ANSWER TO QUESTION 2: ... (40 points) Transaction data Purchase price Equity 300 120 180 Dept capital Tem dept Annual debt accrual Interest rate Tax rate 4 years bullit repayment 45,0 10.0% 30% 2021 2022 2023 2024 2025 Target company Revenues Costs operational EBIT Interest operational Taxes PBT 2020 150,0 -110,0 40,0 6.0 -10,2 23,8 Banks are financing acquisition projects, i.e. for Venture Capital funds. An exemplary project shows the following data: A VC fund purchased the target company on 1.1.2020 for a price of 300k at a Price/EBIT-multiple of 7.5x. 40% of the purchase price is funded by equity of the VC, remaining amount by bank loan at an interest of 10% p.a., collateralized by the shares of the target company. The loan will be repaid on 31.12.2023, accrual for loan repayment is planned pro rata annually. All cash flows related to the purchase will be pushed down into the target company's P&L. The target company runs operationally at annual revenues of 150k in 2020, growing each upcoming year at 4%, while operational costs in 2020 are at -110k at a future growth rate of 2% year-on-year. In 2020, EBIT is 40k. Operational interest is at -6.0k (and will be stable for the upcoming years). Tax rate is 30%. There are no other operational P/L impacts. The VC plans to sell the company on 31.12.2025 = after 6 years) at a Price/EBIT-multiple of 7.5x which was the same at purchase. Please complete the financial model of the transaction based on the xls-table below. In case of lack of data, please take a reasonable assumption for your subsequent calculation. Please calculate the planned annual profitability of the VC fund and the overall internal rate of return. As the financing bank, what is your recommendation in respect to the transaction and its risks and benefits? ANSWER TO QUESTION 2: ... (40 points) Transaction data Purchase price Equity 300 120 180 Dept capital Tem dept Annual debt accrual Interest rate Tax rate 4 years bullit repayment 45,0 10.0% 30% 2021 2022 2023 2024 2025 Target company Revenues Costs operational EBIT Interest operational Taxes PBT 2020 150,0 -110,0 40,0 6.0 -10,2 23,8
