We are on 12/31/23. You are asked to evaluate the potential LBO of a listed company called M&M. These are some useful information. Listed company called M&M These are some useful information:

Data as of 12/31/23

EBITDA ($ million) 20

Pre-LBO Debt [to be refinanced] ($ million) 10

Current market cap ($ million) 100

Excess cash at entry ($million) 0

Transactions assumption

LBO Debt ($ million) 80

Required IRR for equity investors 20%

No dividends can be paid 10

Assumption about exit

Exit date 30

EBITDA at exit ($ million). 50

Debt at exit ($ million) 10

Exit EV / Exit EBITDA 6x

1. What are the sources and uses of funds if the price paid for the equity is 20% above the current market cap of M&M? What is the IRR for equity investors in that case?

2. What is the highest premium for the equity as a percentage of the current market cap that the LBO sponsors would be willing to pay?

3. Suppose the deal is completed at an equity price of $140 million but the exit is expected two years earlier on 12/31/26 at the conditions described above. What is the IRR for equity investors in that case?