Model 16-01A
LBO Model Loan Amortization, 5 Year Period
Bank Loan Amortization
Loan
Interest Rate
Payments
Interest
Principal
Balance
$1,800,000
9%
$462,766
Year 1
162,000
300,766
1,499,234
Year 2
134,931
327,835
1,171,398
Year 3
105,426
357,341
814,058
Year 4
73,265
389,501
424,556
Year 5
38,210
424,556
0
Year 2
0
0
0
Year 3
0
0
0
Year 4
0
0
0
Year 5
0
0
0
Insurance Company Loan Amortization
Loan
Interest Rate
Payments
Interest
Principal
Balance
$0
16%
$0
Year 1
0
0
0
Total Loan Amortization
Interest
Principal
Balance
Year 1
162,000
300,766
1,499,234
Year 2
134,931
327,835
1,171,398
Year 3
105,426
357,341
814,058
Year 4
73,265
389,501
424,556
Year 5
38,210
424,556
0
Beginning
Year Balance
1,800,000
1,499,234
1,171,398
814,058
424,556
9.00%
9.00%
9.00%
9.00%
9.00%
% Interest
Model 16-01B
LBO Model Pro-Forma Cash Flows, Years 1 to 5
Initial earnings before interest and taxes (EBIT)
Growth rate of EBIT
Tax rate
Gross plant & equipment
Depreciation rate (% of gross plant & equipment)
EBIT
- Interest*
EBT
- Taxes
NI
+ Depreciation
CFBDR**
- Principal repaid*
Addition to cash
Year 1
650,000
162,000
488,000
195,200
292,800
480,000
772,800
300,766
472,034
Year 2
650,000
134,931
515,069
206,028
309,041
480,000
789,041
327,835
461,206
650,000
0%
40%
2,400,000
20%
Year 3
650,000
105,426
544,574
217,830
326,744
480,000
806,744
357,341
449,404
Year 4
650,000
73,265
576,735
230,694
346,041
480,000
826,041
389,501
436,540
Year 5
650,000
38,210
611,790
244,716
367,074
480,000
847,074
424,556
422,518
* From Model 16-01A
** CFBDR: Cash flow before debt repayment.
Model 16-01C
LBO Balance Sheet Analysis, Years 1 to 5
Equity position of insurance company
Management team equity
Required rate of return to insurance company
Year 0
0
200,000
0%
1,000
1,000
Year 1
472,034
1,000
473,034
Year 2
933,240
1,000
934,240
Year 3
1,382,643
1,000
1,383,643
Year 4
1,819,183
1,000
1,820,183
Year 5
2,241,701
1,000
2,242,701
99,000
99,000
99,000
99,000
99,000
99,000
Plant & equipment, gross
2,400,000
2,400,000
2,400,000
2,400,000
2,400,000
2,400,000
Less: reserve
Plant & equipment, net
500,000
1,900,000
980,000
1,420,000
1,460,000
940,000
1,940,000
460,000
2,420,000 2,900,000
(20,000) (500,000)
Total assets
2,000,000
1,992,034
1,973,240
1,942,643
1,899,183
1,841,701
Debt
Equity
Total claims
1,800,000
200,000
2,000,000
1,499,234
492,800
1,992,034
1,171,398
801,841
1,973,239
814,058
1,128,586
1,942,644
424,556
1,474,627
1,899,183
1,841,701
1,841,701
90%
75%
59%
42%
22%
0%
200,000
292,800
492,800
492,800
309,041
801,841
801,841
326,744
1,128,586
1,128,586
346,041
1,474,627
1,474,627
367,074
1,841,701
292,800
480,000
772,800
300,766
472,034
472,034
309,041
480,000
789,041
327,835
461,206
472,034
933,240
326,744
480,000
806,744
357,341
449,404
933,240
1,382,643
346,041
480,000
826,041
389,501
436,540
1,382,643
1,819,183
367,074
480,000
847,074
424,556
422,518
1,819,183
2,241,701
Cash (from Model 16-01B)*
Other current assets, net
Total current assets
Property
% debt
Equity Analysis
Previous equity
Add: net Income
New equity balance
Cash Balance Analysis
Net income
Add: depreciation
Less: debt repayment
Add: Previous cash balance
Cash account
Compounded annual growth rate of book equity
Payment on equity interest to insurance company**
Remaining equity for management
55.9%
0
1,841,701
* Could be used for additional investments
** (Equity Position of Insurance Company) x (1 + Required Rate of Return) 5
Model 16-01D
Change in Working Capital Calculation
Year 0
1. Current Assets (from Model16-01C)
2. Current Liabilities*
3. Working Capital = (1) - (2)
Year 1
Year 2
1,000
473,034
300,766
(299,766)
4. Change in Working Capital = (3)
Year 3
Year 4
Year 5
934,240
1,383,643
1,820,183
2,242,701
327,835
357,341
389,501
424,556
145,198
576,899
994,142
1,395,627
2,242,701
444,965
431,701
417,243
401,485
847,074
* Debt due in one year (from Model 16-01A)
Model 16-01E
Capital Cash Flow Model (CCF)
EBIT and Interest Expense
Year 1
Year 2
Year 3
Year 4
Year 5
650,000
162,000
650,000
134,931
650,000
105,426
650,000
73,265
650,000
38,210
Year 1
Year 2
Year 3
Year 4
Year 5
1. EBIT(1-T)
390,000
390,000
390,000
390,000
390,000
2.
3.
4.
480,000
0
444,965
480,000
0
431,701
480,000
0
417,243
480,000
0
401,485
480,000
0
847,074
425,035
438,299
452,757
468,515
22,926
64,800
53,972
42,170
29,306
15,284
7. Capital Cash Flow
489,835
492,272
494,927
497,822
38,210
8. Discounted Capital Cash Flow*
433,483
385,521
343,009
305,323
20,739
EBIT
Interest (i)
Capital Cash Flows
+ Depreciation
Capital Expenditures
Change in Working Capital
5. Free Cash Flows Unlevered Firm
6.
+ Interest Tax Shield (iT)
9. Steady State Tax Shield (SSTS)
10. Terminal value**
4,017,000
Components of Value
PV Capital Cash Flows
PV Terminal Value
1,488,075
2,180,267
Total Firm Value
Less: Pre-Existing Debt
3,668,342
1,800,000
Total Equity Value
1,868,342
Assumptions
Risk-Free Rate (Rf)
Risk Premium (RP)
Asset Beta (a)
Expected Asset Return (ka)
Terminal growth rate (g)
Tax Rate (T)
6%
7%
1.00
13.00%
3%
40%
Notes:
* Discounted at the expected asset return rate = ka = Rf + RP(a)
** Terminal Value = [EBIT5(1-T) + SSTS] (1 + g) / (ka g)
= (390000 + 0)(1 + 0.03) / (0.13 - 0.03)
= 4017000
