Question

LBO – Financial Projection

Company AAA is considering the leveraged buyout of a small company. Company provides the financial information as follows:

Revenue	$4,500,000
Operating Expenses	1,750,000
Depreciation	120,000
Growth and Steady rate	9.5% for next 6 years and after that, at a steady rate 3.5%
	Company is pay down the debt at the annual rate of $375,550 during the next 6 years, after which the remaining debt will be refinanced.
Tax	21%
Debt	$5,500,000
Interest rate	12%

Please use the table to complete the financial project based on the information above.

	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Terminal Year
Revenue	$4,500,000
Operating Expenses	(1,750,000)
Depreciation	( 120,000)
EBIT
Interest
Tax
Net Income

Please provide the interpretation to support your financial projection

Answer 1

Required Financial Projection are as follows

	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Terminal Year
Revenue	45,00,000	49,27,500	53,95,613	59,08,196	64,69,474	70,84,074	73,32,017
Operating Expenses	-17,50,000	-17,50,000	-17,50,000	-17,50,000	-17,50,000	-17,50,000	-17,50,000
Depreciation	-1,20,000	-1,20,000	-1,20,000	-1,20,000	-1,20,000	-1,20,000	-1,20,000
EBIT	26,30,000	30,57,500	35,25,613	40,38,196	45,99,474	52,14,074	54,62,017
Interest	6,60,000	6,94,134	7,32,364	7,75,182	8,23,138	8,76,848	9,37,004
Tax	4,13,700	4,96,307	5,86,582	6,85,233	7,93,031	9,10,818	9,50,253
Net Income	15,56,300	18,67,059	22,06,666	25,77,781	29,83,306	34,26,409	35,74,760
Working Notes
Year	Outstanding debt at begining	Interest	Total	Payment	Outstanding at end
1	55,00,000	6,60,000	61,60,000	3,75,550	57,84,450
2	57,84,450	6,94,134	64,78,584	3,75,550	61,03,034
3	61,03,034	7,32,364	68,35,398	3,75,550	64,59,848
4	64,59,848	7,75,182	72,35,030	3,75,550	68,59,480
5	68,59,480	8,23,138	76,82,617	3,75,550	73,07,067
6	73,07,067	8,76,848	81,83,916	3,75,550	78,08,366
terminal year	78,08,366	9,37,004	87,45,369
Calculation of Tax
EBIT	26,30,000	30,57,500	35,25,613	40,38,196	45,99,474	52,14,074	54,62,017
Interest	6,60,000	6,94,134	7,32,364	7,75,182	8,23,138	8,76,848	9,37,004
EBT	19,70,000	23,63,366	27,93,249	32,63,014	37,76,336	43,37,226	45,25,013
Tax	4,13,700.00	4,96,306.86	5,86,582.19	6,85,232.87	7,93,030.62	9,10,817.53	9,50,252.72