RITL is a leading player in India in the field of gaming. It acquired a company by the name Gizmos Software for the purpose of providing backend support to its gamers. Gizmos was doing well in its space before the acquisition. But post the acquisition, it wasnt utilized properly by RITL which became more focused on developing new games for the overseas market. Gizmos profitability started to dwindle because of this.

The senior management of Gizmos who had built the company from scratch did not take it well. They decided to go in for a LBO.

Since RITL was busy developing games, its management was fine with the divestiture.

Gizmos had decent clientele and stable margins. It had positioned itself well in the market and therefore enjoyed a steady cash flow. It had decent amount of intangible assets in the form of Intellectual Properties.

Given below is the financial information of Gizmos for the year 2021.

Revenues Rs. 80 lacs , EBIT Rs.14 lacs , Net income Rs. 8 lacs.

The purchase price offered by the management of RITL was Rs.40 lacs.

Gizmos senior management decided to raise Rs.30 lacs as debt from bank as senior debt @ 11% interest amortized over 5 years (repayable in 5 years).

It also reached out to an insurance company and gathered a loan of another 5 lacs @12% int., as subordinate debt repayable in 5 years.

The senior management decided to take an equity of Rs.5 lacs.

The year on year growth in operating profit is 3% and tax rate is 30%.

Depreciation on assets is calculated on a straight line basis at 6% p.a.

Calculate the following:

1.Interest on Bank Loan & on Insurance Loan for each of the 5 years (5 Marks)

2. Principle on Bank Loan & on Insurance Loan for each of the 5 years (5 Marks )

------. Value of the Firm after Leverage Buyout at the end of the 5th year ( 5 Marks )

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