9325 million, for a $7 million investment on 1/1/04. The Series B. investors will receive a total of $5.55 million for their investment of $3 million on 1/1/08. The spreadsheet to calculate the XIRR of these owners is as follows: XIRR

1/1/2004

1/1/2008

12/31/2009

Class A

9.29%

-7,000,000

0

11,932,500

Class B

36.01%

0

-3,000,000

5,550,000

The Class B shareholders have a higher IRR because they were able to buy in at a relatively low price, and cash out quickly. The Class A shareholders needed to wait longer to cash out, which accounts for the lower IRR.

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

64.33%

(5,000,000)

60,000,000

G. Under this scenario, the value of the sale would be reduced from...

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 group's 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.