Question 30.

PinderLLC is planning on a leveraged buyout of Value Co. Pinder LLC believes that it could improve its investment returns by reducing capital expenditures to 2% of sales for the first four years then raising it to 7% of sales in the fifth year and onwards. Pinder believes that this reduction in capital expenditures will only have a small impact on the performance of Value Co, and that the long-term consequences will only be felt much later, when Pinder LLC has long exited from the investment. What is the percentage point improvement for Pinder LLCs IRR under this strategy? Assume that all other conditions of the buyout are identical to the assumptions in the lecture.

(For this question, the answer does not need to be handwritten. You only need to copy paste the relevant sensitivity table containing the entry and exit multiples at 8.0x EBITDA after making the necessary changes to the template to show your work. Make sure the assumptions in the lecture are correctly inputted in the template the IRR prior to making changes should be 19.7%.)