Case Study
Reykjavik Fleet Leasing

Prof. Ian Giddy, New York University

You have been asked to estimate the rate of return to investors in a leveraged buyout.
The key calculation is the exit valuation. You will base the exit valuation on the concept "Equity=Enterprise Value - Net Debt"

You will assume exit enterprise value is performed at a multiple of EBITDA which equals the entry valuation.

The facts are as follows:

The Target Company
Company purchase price: 600 million ISK
Initial debt of company: 100

Initial EBITDA of company: 75

Growth rate of EBITDA: 7%

The Proposed Financing

Debt: 400

Annual amortization: 50

Management equity investment: 30

Sponsor equity investment (convertible preferred with 5% dividend) 170

Management bonus: 3%

The Exit

Exit after 5

At exit multiple of

With cash of


1. What is the exit equity value?
2. What internal rate of return can sponsors expect? And management? | | | | contact
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