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Finance Case Study UNCOMMON
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Excerpt from Case Study:
Finance Case Study UNCOMMON OPTICS CORPORATION UCO
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F. Under this scenario, the management team would receive the full $60 million, which gives them an IRR of:
| |XIRR |12/31/2009 |12/31/2014 |
|Mgmt |64.33% | (5,000,000) | 60,000,000 |
G. Under this scenario, the value of the sale would be reduced from $60million to $40 million after the LBO groups debt is paid out from the proceeds of the sale. The warrant exercise is worth 1.9 million common shares. When the LBO occurred, there were 2 million shares outstanding. This would therefore dilute that so that the LBO group would hold 1.9 / 3.9 = 48.71% of the equity in the firm after the warrant sale. At a firm equity value of $40 million, these warrants would be worth$19.48 million. The 8% interest on the loan must also be calculated when considering the LBO groups IRR
| |XIRR |12/31/2009 |12/31/2010 |12/31/2011 |12/31/2012 |12/31/2013 |12/31/2014 |
|LBO |18.42% |-21,900,000 |1,600,000 |1,600,000 |1,600,000 |1,600,000 |41,080,000 |
On 12/31/2014 the LBO group earns the final interest payment on its loan, the principle repayment on its loan and the proceeds from the warrant. The bulk of the return comes from the warrant, as predicted......
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