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Gamma LLC is considering a leveraged buyout of Delta Co . Delta can be acquired for 5 . 5 times EBITDA ( LTM ) .
Gamma LLC is considering a leveraged buyout of Delta Co Delta can be acquired for times EBITDA LTM Gamma expects to be able to sell Delta at times EBITDA LTM after four years at the end of The buyout will be financed with debt. The interest on the debt is and the principal will be repaid using all cash that is available for debt repayment each year. Any remaining debt will be repaid when Delta is sold off by Gamma after four years.
The financial year has just concluded for Gamma and Delta. In Deltas sales were $ million. Deltas sales are expected to grow by in and thereafter. Deltas EBIT margin was in and that is expected to continue for at least four years. Deltas depreciation in was $ million. Deltas existing net plant, property, and equipment as of the end of is $ million, and this will be depreciated to zero in years, using the straightline method. Delta will incur capital expenditures of around of sales each year. These capital expenditures will also be depreciated to zero in years using the straightline method. Delta needs to maintain working capital of of sales. Deltas interest expenses are calculated on the ending balance of the previous years debt. Deltas tax rate is and will have no cash right after the buyout. All cash flows occur at the end of the year. What is the expected IRR from this leveraged buyout? Round the final answer to the nearest two digits.
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