Alcoholism Among Adolescents A Public Health Problem

Alcoholism amongst adolescents is a major public health problem. The purpose of researching alcoholism amongst adolescents is because alcohol is a drug. The drug of alcoholism is the most common and also the most abused drug amongst adolescents. The CDC (Centers for Disease Control and Prevention) believes that alcoholism amongst adolescents can lead to binge drinking and its on the rise. The CDC states, â€Å" Alcohol use is responsible for more than 4,300 annual deaths among underage youth. Although drinking by persons under the age of 21 is illegal, people aged 12 to 20 years drink 11% of all alcohol consumed in the United States. More than 90% of this alcohol is consumed in the form of binge drinks. On average, underage drinkers consume more drinks per drinking occasion than adult drinkers (CDC 2014)†. The CDC also notes, â€Å"Youth who start drinking before age 15 years are five times more likely to develop alcohol dependence or abuse later in life than those who beg in drinking at or after age 21 years. (CDC 2014)† Understanding the attributable causes of alcoholism drew my attention to researching literature and studies of the causes. The national institute on alcohol abuse and alcoholism informed me on a lot of background information regarding alcoholism and adolescents and its affects. The director, Enoch Gordis, M.D., wrote a commentary that stated information about alcohol as a drug. Gordis stated, â€Å"Alcohol, the most widely used and abused drug among youth, causesShow MoreRelatedThe Drinking Age Should Not Be Lowered1705 Words   |  7 PagesAlcohol is usually sought after within the adolescent community and has been an issue among young people. 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Lbo Model Free Essays

Leveraged Buyout Model (LBO) Copyright 2009 Investment Banking Institute www. ibtraining. com Table of Contents I. We will write a custom essay sample on Lbo Model or any similar topic only for you Order Now Uses for An LBO Model on Sell-side and Buy-side Construction of LBO Model Structure and Assumptions Worksheet Purchase price calculation and considerations Sources and Uses II. Capital Structure Alternatives Integration of Proforma Balance Sheet into Financial Model Income Statement, Balance Sheet and Cash Flow Projections Integration III. IRR Analysis for Financial Sponsor and Hybrid Debt Lender IV. Sensitivity Tables V. Credit Ratios 2 Uses for an LBO Model on the Buy-Side A Leveraged Buyout Model (â€Å"LBO Model†) is a key analysis used by private equity firms / financial sponsors to evaluate a potential acquisition The goal of an LBO is to acquire a company by financing the purchase with as much debt as the cash flows of the business and the debt markets will support The more debt a financial sponsor is able to obtain to finance an acquisition, the less of an equity investment the financial sponsor has to make The higher the leverage levels, the higher the expected Internal Rate of Return (â€Å"IRR†) is for the financial sponsor / private equity firm The goal of an LBO model is to establish expected internal rates of return (â€Å"IRR†) for the acquisition using a financial model that reflects the following: Purchase price assumptions and the necessary cash needed to finance the acquisition (uses of cash) Capitalization assumptions: leverage (amount of debt), different debt tranches, equity investment amounts (sources of cash) Base case financial projections for the income statement, balance sheet and cash flow based upon the purchase price and capitalization assumptions The LBO model should be built with the ability to run sensitivities for a range of purchase prices, capitalization structures, operating assumptions, etc. 3 Uses for an LBO Model on the Buy-Side Private Equity Firms / Financial Sponsors usually have a required rate of return hurdle f the expected IRR range for a potential acquisition does not meet or exceed the hurdle rate, often the PE firm / financial sponsor does not move forward with the acquisition PE firms required rates of return usually range from 15% on the low-side to 30% on the high-side, with the typical range targeted at 18% – 25% The IRR analysis is strongly driven by the amount of leverage With higher leverage levels, the financial sponsor has to invest less equity, and therefore has a higher IRR Therefore, often the goal is to leverage up the Company as much as the cash flow of the business and the debt markets will permit More leverage makes the business inherently riskier, as more of the cash flows generated by the business will be used to pay interest expense and debt service The amount of leverage is largely determined by the state of the debt markets 4 Uses for an LBO Model on the Buy-Side The amount of leverage is largely determined by the state of the debt markets For the last several years, the debt markets have been experiencing excess liquidity Because of the excess liquidity, lenders have been allowing higher leverage levels Depending on the industry and business, transactions over the last several years have been leveraged at between 4. 0x – 6. 0x recent EBITDA These higher leverage levels allow the financial sponsor to pay more for the company and still attain its required IRR The leverage level of 4. 0x – 6. x recent EBITDA is comprised of some combination of senior secured loans and junior loans (second lien, third lien, unsecured loan, hybrid debt / equity securities) Lenders may require the financial sponsor to have a minimum equity investment as % of total capitalization Minimum equity contribution is typically around 20% â₠¬â€œ 25%, depending on industry and purchase price 5 Uses for an LBO Model on the Buy-Side The LBO Model is also used for the Lenders’ perspectives Lenders like to see expected leverage and coverage ratios based upon the Company’s projected income statement, balance sheet, cash flow, and capitalization Typical ratios that lenders like to see are: Leverage Ratios Total Debt / EBITDA Net Debt / EBITDA Secured Debt / EBITDA EBITDA / Net Interest Expense EBITDA / Cash Interest Expense Interest Coverage Statistics EBITDA / Net Interest Expense EBITDA / Cash Interest EBITDA – Capex / Net Interest Expense EBITDA – Capex / Cash Interest Expense EBITDA – Capex – ? W/C / Net Interest Expense EBITDA – Capex – ? W/C / Cash Interest Expense EBITDA – Capex – ? W/C – Taxes/ Net Interest Expense EBITDA – Capex – ? W/C – Taxes/ Cash Interest Expense 6 Uses for an LBO Model on the Sell-Side Investment Bankers often construct LBO models to: Provide this service to a financial sponsor client that is interested in pursuing an acquisition Provide this service to a Company client where the company is being sold – Illustrates the range of purchase prices financial buyers could pay and still attain their required IRR – Uses the current debt markets conditions as assumptions for the capitalization As a â€Å"gut-check† for other valuation methodologies (DCF, Public comparable company multiples, acquisition multiples) 7 Table of Contents I. Uses for An LBO Model on Sell-side and Buy-side Construction of LBO Model Structure and Assumptions Worksheet Purchase price calculation and considerations Sources and Uses II. Capital Structure Alternatives Integration of Proforma Balance Sheet into Financial Model Income Statement, Balance Sheet and Cash Flow Projections Integration III. IRR Analysis for Financial Sponsor and Hybrid Debt Lender IV. Sensitivity Tables V. Credit Ratios 8 Construction of LBO Model Structure and Assumptions Worksheet Build upon the Financial Model template, and modify accordingly Add a worksheet for the LBO Model Structure and Assumptions The LBO Assumptions tab will have drivers for Purchase price assumptions Uses: Cash required to acquire the company and pay associated fees Sources: Cash available to acquire the company (debt, equity) USES = SOURCES Capitalization assumptions IRR Analyses 9 Purchase Price Calculation and Considerations The determination of the purchase price is complicated and typically involves a full-scale valuation (DCF, public company multiples and transaction multiples) as well as extensive due diligence on Company’s operations, financial condition, management team, customers, suppliers, assets, etc. If the Company has publicly traded equity, then typically a purchase price would be calculated much as TEV is calculated: (Offer price per share * fully diluted shares) + debt + minority interest + preferred interest – cash For the purposes of this model, we are assuming the LBO of a private company, and therefore using the most recent 12 month EBITDA and EBITDA multiple as the drivers of purchase price Purchase price = EBITDA * EBITDA multiple We are assuming the transaction closes on December 31, 2008 LBO of Company A ($ in millions) TRANSACTION ASSUMPTIONS Closing Date 31-Dec-08 2008 EBITDA $60. 0 EBITDA Multiple 6. 0x Transaction (Enterprise) Value $360. 0 Less: Existing Debt ($190. 8) Plus: Cash $0. 0 Implied Equity Purchase Price $169. 2 10 Sources and Uses Total Uses is the amount of cash necessary to complete the transaction Usually equals the purchase price plus transaction fees and any other cash payment required as part of the transaction – For the LBO of a publicly traded company, purchase price is calculated as (offer price per share * shares outstanding ) + debt + minority interest + preferred equity – cash, and cash on target’s balance sheet is used as a source Other required cash payments could be payments to certain parties that kick-in with a change of control (e. g. anagement payments, premiums to outstanding notes, etc. ) Total Sources illustrates the sources of capital to complete the transaction Usually equals debt + equity + any other cash available Total Uses = Total Sources LBO of Company A ($ in millions) TRANSACTION ASSUMPTIONS Closing Date 31-Dec-08 200 8 EBITDA $60. 0 EBITDA Multiple 6. 0x Transaction (Enterprise) Value $360. 0 Less: Existing Debt ($190. 8) Plus: Cash $0. 0 Implied Equity Purchase Price $169. 2 TOTAL USES Uses Equity Purchase Price Paydown Existing Debt Financing Fees Investment Banking Fees Legal Fees Other Fees and Expenses $169. 2 $190. 8 8. 0 4. 0 1. 0 1. 0 Total Uses $374. 0 TOTAL SOURCES Amount EBITDA of Funded Multiple Capitalization $0. 0 0. 0x 0. 0% 0. 0 0. 0x 0. 0% 120. 0 2. 0x 32. 1% 90. 0 1. 5x 24. 1% 60. 0 1. 0x 16. 0% 270. 0 4. 5x 72. 2% 104. 0 27. 8% $374. 0 100. 0% Capitalization Cash Revolver Term Loan Senior Bonds Unsecured Notes with Warrants Total Debt Sponsor Equity Total Sources 11 Interest Rate Cash Pay PIK 7. 0% 7. 5% 9. 5% 0. 0% 0. 0% 0. 0% 0. 0% 10. 0% % of Fully Diluted Equity na na na 5. 0% Capital Structure Alternatives The Total Sources Side is comprised of the capitalization assumptions The financial sponsor typically wants to leverage the transaction as much as the business’s cash flow and the lenders will allow Depending on the conditions of the debt markets and lenders’ requirements, financial sponsors would typically provide approximately 20% – 30% of the capitalization as an equity investment The debt is comprised of different securities usually provided by different lenders Revolver / Term loan (senior secured loans) are usually provided by typical commercial banks such as Citigroup, JPMorganChase, GE Commercial Finance, etc. , and have lower interest rates Junior loans such as second and third lien pieces and unsecured loans can be provided by public markets (high yield issue) and private placements (hedge funds, junior loan providers, investment bank providing balance sheet financing, etc. ) Often, the most junior piece on the capital structure will have equity warrants attached; the most junior lender will require a much higher rate of return than the more senior lenders The financial sponsors want to attain as much of the lower-priced debt as possible; in this example, we have assumed that total senior leverage (revolver + term loan) = 2. 0x EBITDA The example shows a 4. 5x EBITDA leverage ratio, and 1. 7x EBITDA equity ratio (LTM EBITDA is $60 million in this case) Capitalization Cash Revolver Term Loan Senior Bonds Unsecured Notes with Warrants Total Debt Sponsor Equity Total Sources TOTAL SOURCES Amount EBITDA % of Funded Multiple Capitalization $0. 0 0. 0x 0. 0% 0. 0 0. 0x 0. 0% 120. 0 2. 0x 32. 1% 90. 0 1. 5x 24. 1% 60. 0 1. 0x 16. 0% 70. 0 4. 5x 72. 2% 104. 0 27. 8% $374. 0 100. 0% 12 Interest Rate Cash Pay PIK 7. 0% 7. 5% 9. 5% 0. 0% 0. 0% 0. 0% 0. 0% 10. 0% % of Fully Diluted Equity na na na 5. 0% Creation of Proforma Balance Sheet Proforma Balance Sheet ($ in millions) Balance Sheet Assets Cash Accounts Receivable Inventory Other Current Assets Total Current Assets Historical Dec. 31 2008 $0. 0 $16. 0 $10. 0 $1. 0 $27. 0 Financing/ Transaction Adjustments $0. 0 0. 0 0. 0 0. 0 $0. 0 Proforma Dec. 31 2008 $0. 0 16. 0 10. 0 1. 0 $27. 0 Gross PPE Cumulative Depreciation Net PPE $323. 2 $45. 0 $278. 2 $0. 0 0. 0 $0. 0 $323. 2 45. 0 $278. 2 Amortizable Intangibles Goodwill Total Assets $0. 0 5. 0 $310. 2 $8. 0 65. 2 $73. 2 $8. 0 70. 2 $383. 4 Liabilities Accounts Payable Accrued Liabilities Other Current Liabilities Total Current Liabilities $11. 0 $2. 4 $0. 0 $13. 4 $0. 0 0. 0 0. 0 $0. 0 $11. 0 $2. 4 0. 0 $13. 4 Existing Debt Revolving Credit Facility Term Loan Unsecured Debt $40. 8 $100. 0 $50. 0 New Debt Revolving Credit Facility Term Loan Second Lien Unsecured Debt $0. 0 0. 0 0. 0 0. 0 $0. 0 $120. 0 $90. 0 $60. 0 $0. 0 $120. 0 $90. 0 $60. 0 Other Liabilities Total Liabilities $2. 0 $206. 2 $0. 0 $79. 2 $2. 0 $285. 4 Shareholders Equity Retained Earnings Common Stock Total Shareholders Equity $94. 0 10. 0 $104. ($100. 0) $94. 0 ($6. 0) Total Liabilities and Equity Check $310. 2 $0. 0 $73. 2 $0. 0 ($40. 8) ($100. 0) ($50. 0) $0. 0 $0. 0 $0. 0 ($6. 0) 104. 0 $98. 0 $383. 4 $0. 0 13 Creating a proforma balance sheet on a new worksheet allows for the integration of the new capital structure / sources into the existing financial model In the purchase of a private company, the seller typically sweeps all of the cash on the balance sheet at closing In the LBO of a publicly traded company, cash would not typically be swept as it is part of the offer price per share There may be a writeup or writedown of the value of the AR, Inventory and PPE; this has an mpact on the tax basis All financing fees incurred in the transaction can still be capitalized and amortized The Goodwill is Purchase Price + MA Fees – New Debt – Old Book Value of Equity; this amount can no longer be amortized In the purchase of a public company, goodwill is calculated as equity value of purchase – book value of equity The buyer typically assumes all of the normalcourse short term liabilities The â€Å"old debt† is eliminated (as the seller typically uses proceeds from the sale to pay all existing debt) In the purchase of a public company, often the existing debt of the acquired company remains outstanding, and is â€Å"assumed† by the acquirer The â€Å"new debt† is fed from the Total Sources cells Shareholders’ Equity may require a plug to allow for the Total Assets to equal Total Liabilities + Shareholders’ Equity Creation of Proforma Balance Sheet ($ in millions) PROJECTED FINANCIAL STATEMENTS Fiscal Year Ending December 31, 2009P 2010P 2011P 2012P 2013P 2008A Pro Forma 2008P Balance Sheet Assets Cash Accounts Receivable Inventory Other Current Assets Total Current Assets $0. 0 $16. 0 $10. 0 $1. 0 $27. 0 $0. 0 $16. 0 $10. 0 $1. 0 $27. 0 $0. 0 $17. 5 $10. 5 $1. 0 $29. 0 $0. 0 $18. 4 $11. 0 $1. 0 $30. 4 $1. 9 $19. 3 $11. 6 $1. 0 $33. 8 $7. 5 $20. 3 $12. 2 $1. 0 $40. 9 $0. 0 $21. 3 $12. 8 $1. 0 $35. 0 Gross PPE Cumulative Depreciation Net PPE $323. 2 $45. 0 $278. 2 $323. 2 $45. 0 $278. 2 $337. 9 $51. 8 $286. 1 $353. 3 $58. 8 $294. 5 $369. 5 $66. 2 $303. 3 $386. 6 $73. 9 $312. 6 $404. 4 $82. 0 $322. 4 Amortizable Intangibles Goodwill Total Assets $0. 0 $5. 0 $310. 2 $8. 0 $70. 2 $383. 4 $6. 4 $70. 2 $391. 7 $4. 8 $70. 2 $399. 9 $3. 2 $70. 2 $410. 5 $1. 6 $70. 2 $425. 4 $0. 0 $70. 2 $427. 6 Liabilities Accounts Payable Accrued Liabilities Other Current Liabilities Total Current Liabilities $11. 0 $2. 4 $0. 0 $13. 4 $11. 0 $2. 4 $0. 0 $13. 4 $11. 7 $2. 5 $1. 0 $15. 2 $12. 3 $2. 6 $1. 0 $15. 9 $12. 9 $2. 8 $1. 0 $16. 6 $13. 5 $2. 9 $1. 0 $17. 4 $14. 2 $3. 1 1. 0 $18. 2 Existing Debt: Revolving Credit Facility Term Loan Unsecured Debt $40. 8 $100. 0 $50. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 New Debt Revolving Credit Facility Term Loan Senior Bonds Unsecured Debt $0. 0 $0. 0 $0. 0 $0. 0 $0. 0 $120. 0 $90. 0 $60. 0 $1. 5 $100 . 0 $90. 0 $66. 0 $1. 0 $80. 0 $90. 0 $72. 6 $0. 0 $60. 0 $90. 0 $79. 9 $0. 0 $40. 0 $90. 0 $87. 8 $3. 8 $0. 0 $90. 0 $96. 6 Other Liabilities Total Liabilities $2. 0 $206. 2 $2. 0 $285. 4 $2. 0 $274. 7 $2. 0 $261. 5 $2. 0 $248. 5 $2. 0 $237. 3 $2. 0 $210. 7 Shareholders Equity Retained Earnings Common Stock Total Shareholders Equity $94. 0 $10. 0 $104. 0 ($6. 0) $104. 0 $98. 0 $13. 1 $104. 0 $117. 1 $34. 4 $104. 0 $138. 4 $58. 0 $104. 0 $162. 0 $84. 1 $104. 0 $188. 1 $112. 9 $104. 0 $216. 9 Total Liabilities and Equity Check $310. 2 $0. 0 $383. 4 $0. 0 $391. 7 $0. 0 $399. 9 $0. 0 $410. 5 $0. 0 $425. 4 $0. 0 $427. 6 $0. 0 14 The Proforma Balance Sheet is then fed into the existing model’s balance sheet, and integrated appropriately into the cash flow and income statement We are assuming the transaction occurs on Dec. 31, 2008 Be careful when you are integrating to NOT CHANGE the income statement, balance sheet and cash flow statement for the period right efore the transaction date The income statement and cash flows for 2008 will not change because of the acquisition (as it occurs on Dec. 31, 2008, after the 2008 period has ended) Only the 2009 and onward income statement and cash flows will reflect the impact of the new capital structure / balance sheet Income Statement, Balance Sheet and Cash Flow Projections Integration The remainder of the projection model is completed as we discussed in the last class Construction of a debt and interest schedule and revolver model allows the integration of the income statement, balance sheet and cash flow projections Be careful to make sure that the cash flow for the period irectly following the transaction closing is being calculated as the changes in the proforma balance sheet and that period directly following the transaction 15 Table of Contents I. Uses for An LBO Model on Sell-side and Buy-side Construction of LBO Model Structure and Assumptions Worksheet Purchase price calculation and considerations Sources and Uses II. Capital Structure Alternatives Integration of Proforma Balance Sheet into Financial Model Income Statement, Balance Sheet and Cash Flow Projections Integration III. IRR Analysis for Financial Sponsor and Hybrid Debt Lender IV. Sensitivity Tables V. Credit Ratios 16 IRR Analysis for Financial Sponso rs The financial sponsor’s IRR analysis accounts for all cash flows coming from the financial sponsor for or to the Company, as well as all cash flows from the Company to the financial sponsor during the period from closing the acquisition to the sale of the company (other than management fees) Often, the company pays the financial sponsor â€Å"management fees† in exchange for the financial sponsor’s ongoing support, management and advice provided to the management team as well as covering the financial sponsor’s direct expenses and overhead allocation Management fees are expensed as an SGA expense on the company’s income statement and range greatly, depending on company’s size Typically financial sponsors do not include the payment of management fees in the IRR analysis 17 IRR Analysis for Financial Sponsors Amounts that the financial sponsor pays for or to the company are counted as cash outflows; examples include Initial equity investment Any additional equity investments made into the company during the holding period Any amount received by the financial sponsor from or by the company are counted as cash inflows (other than management fees); examples include: Proceeds from sale of the company Common or preferred dividends paid to financial sponsor Proceeds from a recapitalization 18 IRR Analysis for Financial Sponsors Calculate the sale of the business, assuming it is sold on December 31, 2013 Use the 2013 projected EBITDA, and the same EBITDA multiple assumption used for the purchase of the Company in 2008 Calculate the proceeds to the financial sponsor, taking into account any equity dilution that may result from warrants, management stock plan, transaction fees, etc. SALE OF COMPANY A IN 2013 Closing Date 31-Dec-13 2012 EBITDA EBITDA Multiple Transaction Value Less: Total Debt Plus: Cash Balance $76. 6 6. 0x $459. 5 (190. 5) 0. 0 Less: Transaction Fees (1) Equity Value % Equity to Sponsor Equity to Sponsor (6. 6) $262. 4 95. 0% $249. 3 % Equity to Unsecured Lender Equity to Unsecured Lender 5. 0% 13. 1 (1) Assumes 1% of Purchase Price for Investment Banking Fees, plus $2 million in legal and other expenses. 19 IRR Analysis for Financial Sponsors The following table illustrates the categories to calculate the IRR to the financial sponsor Any cash flow from the financial sponsor for or to the com pany is negative Any cash flow from or for the company to the financial sponsor is positive In general there is no closed-form solution for IRR, particularly with variable cash flows for each year; however, excel can easily calculate the IRR using the following formula: = IRR (total cash flows over period, estimated IRR) From Total Sources table SALE OF COMPANY A IN 2013 Closing Date 31-Dec-13 2012 EBITDA EBITDA Multiple Transaction Value Less: Total Debt Plus: Cash Balance Less: Transaction Fees Equity Value % Equity to Sponsor Equity to Sponsor $76. 6 6. 0x $459. 5 (190. 5) 0. 0 (1) % Equity to Unsecured Lender Equity to Unsecured Lender IRR to Financial Sponsor Initial Equity Investment Dividends Proceeds at Sale Total Cash Flows to Sponsor IRR Calculation 12/31/08 ($104. 0) 0. 0 0. 0 ($104. 0) 19. 1% 12/31/09 $0. 0 0. 0 0. 0 $0. 0 12/31/10 $0. 0 0. 0 0. 0 $0. 0 12/31/11 $0. 0 0. 0 0. 0 $0. 0 12/31/12 $0. 0 0. 0 0. 0 $0. 0 12/31/13 $0. 0 0. 0 249. 3 $249. 3 (6. 6) $262. 4 95. 0% $249. 3 5. 0% $13. 1 IRR = IRR (Total Cash flows to sponsor 2009 – 2013, estimated IRR) 20 IRR for Hybrid Securities Holder The following table illustrates the categories to calculate the IRR to the Unsecured Lender Recall from the sources and uses, that the unsecured lender loaned an amount of $60 million at a 10% PIK interest rate, with equity warrants equal to 5% of the fully-diluted equity of the company upon a sale Any cash flow from the lender to the company is negative (initial loan) Any cash flow from the company to the lender is positive (includes any cash interest received during the period, the payment of the principal balance plus any accrued interest at maturity, and equity to the unsecured lender at a sale) In certain cases, the exercise of the warrants would require the payment by the warrant holders to the Company of an exercise price; the proceeds from the warrant exercise would be a source of cash for the seller This is very transaction-specific and would be extensively negotiated in the agreement between the company and the lenders From Total Sources table IRR to Unsecured Lender Initial Loan Cash Interest Received Principal Repayment at Sale Equity from Warrants at Sale Total Cash Flows to Lender IRR Calculation From Debt and Interest Schedule – Cash Interest only 12/31/08 ($60. 0) 0. 0 0. 0 0. 0 ($60. 0) 12. 8% 12/31/09 $0. 0 0. 0 0. 0 0. 0 $0. 0 12/31/10 $0. 0 0. 0 0. 0 0. 0 $0. 0 12/31/11 $0. 0 0. 0 0. 0 0. 0 $0. 0 12/31/12 0. 0 0. 0 0. 0 0. 0 $0. 0 12/31/13 $0. 0 0. 0 96. 6 13. 1 $109. 8 From Balance Sheet IRR = IRR (Total Cash flows to lender 2006 – 2010, estimated IRR) 21 Table of Contents I. Uses for An LBO Model on Sell-side and Buy-side Construction of LBO M odel Structure and Assumptions Worksheet Purchase price calculation and considerations Sources and Uses II. Capital Structure Alternatives Integration of Proforma Balance Sheet into Financial Model Income Statement, Balance Sheet and Cash Flow Projections Integration III. IRR Analysis for Financial Sponsor and Hybrid Debt Lender IV. Sensitivity Tables V. Credit Ratios 22 Sensitivities on Financial Model Running sensitivities on your LBO assumptions is a good check to make sure the model is running properly as well as being able to show how a change in one variable will impact the whole model Sensitivity tables illustrate the impact on the model for a range of variable changes, and this LBO model has the flexibility to run sensitivities on the LBO assumptions (purchase price, capital structure, etc. ) and the business’s operations (growth rates, margins, etc) to see the impact on the expected IRRs of the financial sponsor and unsecured lender Setting up a sensitivity table: Input a range of variables on the x-axis of the chart Input a second range of variables on the y-axis of the chart link the intersection cell on the left hand corner of the chart to the cell that has the proper formula Highlight the data sensitivity table Go to â€Å"Data† toolbar, select â€Å"Table†; a box pops up that has Row Input Cell and Column Input Cell – – For Row Input Cell, click on the cell that has the driver / assumption input for the x axis variable For the Column Input Cell, click on the cell that has the driver / assumption input for the y axis variable 23 Table of Contents I. Uses for An LBO Model on Sell-side and Buy-side Construction of LBO Model Structure and Assumptions Worksheet Purchase price calculation and considerations Sources and Uses II. Capital Structure Alternatives Integration of Proforma Balance Sheet into Financial Model Income Statement, Balance Sheet and Cash Flow Projections Integration III. IRR Analysis for Financial Sponsor and Hybrid Debt Lender IV. Sensitivity Tables V. Credit Ratios 24 Credit Ratios In determining how much money to lend to companies / financial sponsors for an acquisition, lenders analyze the amount of coverage they will have on their loans Lenders typically look at the following projected credit ratios, based on the base case scenarios, and then will run stress tests on the model to look at the impact on these ratios in the event the company takes a turn for the worse Leverage Ratios Total Debt / EBITDA Net Debt / EBITDA Secured Debt / EBITDA EBITDA / Net Interest Expense EBITDA / Cash Interest Expense 4. 1x 4. 1x 3. 0x 2. 8x 3. 7x 3. 7x 3. 7x 2. 6x 3. 0x 4. 3x 3. x 3. 3x 2. 2x 3. 3x 5. 0x 3. 0x 2. 9x 1. 8x 3. 6x 5. 9x 2. 5x 2. 5x 1. 2x 4. 1x 7. 5x Interest Coverage Statistics EBITDA / Net Interest Expense EBITDA / Cash Interest EBITDA – Capex / Net Interest Expense EBITDA – Capex / Cash Interest Expense EBITDA – Capex – ? W/C / Net Interest Expense EBITDA – Capex – ? W/C / Cash Interest Expense EBITDA – Capex – ? W/C – Taxes/ Net Interest Expense EBITDA – Capex – ? W/C – Taxes/ Cash Interest Expense 2. 8x 3. 7x 2. 1x 2. 9x 2. 1x 2. 9x 1. 6x 2. 1x 3. 0x 4. 3x 2. 3x 3. 3x 2. 3x 3. 3x 1. 7x 2. 4x 3. 3x 5. 0x 2. 5x 3. 8x 2. 6x 3. 9x 1. 8x 2. 8x 3. 6x 5. 9x 2. 8x 4. 5x 2. 8x 4. 6x 2. 0x 3. 2x 4. 1x 7. 5x 3. x 5. 8x 3. 2x 5. 8x 2. 1x 4. 0x 25 Build an LBO Model from Scratch Build an LBO Model for Company B, using the historic financial statements (available electronically) Use the assumptions you feel are appropriate for projecting the Income Statement, balance sheet, and cash flow Use the following assumptions for the acquisition and financing: Acquisition – Closing date is December 31, 2008 – Purchase price is 7. 0x 2008 EBITDA Multiple Uses – Financing Fees are equal to 3% of purchase price – Investment banking fees a re equal to 1% of purchase price – Legal fees are equal to $1 million – Other fees and expenses are equal to $1 million Sources Equity must equal 20% of total uses / sources – Revolver availability is $20 million, with total amount funded equal to 75% of Inventory and 65% of Accounts Receivable at a 5% cash pay interest rate – Term Loan is equal to 2. 5x 2008 EBITDA, to be amortized over 7 years, at a 5% cash pay interest rate – Second Lien debt is equal to 1. 5x 2008 EBITDA, with a 10% cash pay interest rate – Unsecured Notes with Warrants fill the balance of the capital structure; 10% PIK rate with warrants equal to 15% of fully diluted equity upon sale of company Annual management fees to financial sponsor of $1 mm starting in 2007 Amortize fees over 5 year period Sale of Business in 2012 – Sold at 7. 0x 2012 multiple – Transaction fee equal to 1% of purchase price for investment banking fees plus $2 million in legal and other expenses Calculate the IRR to the financial sponsor Calculate the IRR to the unsecured lender with warrants Calculate sensitivity tables for the following: – IRR to financial sponsor for range of multiples paid and equity investment as % of total capital – IRR to unsecured lender for range of multiples paid and equity investment as % of total capital – Maximum revolver drawn for range of multiples paid and equity investment as % of total capital Add summary and credit ratios tables 26 How to cite Lbo Model, Essay examples

Social Networking Sites Bring More Benefits Than Harms free essay sample

Nowadays, social networking sites are very popular among people all around the world especially teenagers. In fact, social networking sites such as Facebook, Myspace and Twitter are names which are quite familiar to anyone of us. Furthermore, many of us make use of these social networking sites to stay in touch with our family and friends. This is because that these sites are cheap, fast and easy to access. However, the parents often feel worry for letting their teens use these social networking sites. In this case, a study IVe founded stated that these sites have actually bring more enefits than harms to teens. Advocates of the social networking sites show that these sites have become an essential daily necessity for people who are using them. These sites serve as a great way for people to meet new friends from every part of the world. They are able to create their own profile in these social networking sites and start making new friends. We will write a custom essay sample on Social Networking Sites Bring More Benefits Than Harms or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page They can find users who have the same interests to them with the help of advanced search tools and that can be the starting point of a great friendship or relationship. Many people meet online and then stabilish a relationship in real life. However, they need to be extra be careful when they want to meet friends whom they know from social networking sites so that they will not be cheated or lead themselves into dangers. These sites are Just convenient and easy. People with low self-esteem may make their friends via social networking sites. When they interact with other people through the internet, it becomes more easier for shy people or those who have low self-esteem since they dont have to talk with eople face to face and the purpose of these sites is to start and participate in online conversations. These sites can help to develop a positive attitude for people who are shy. These social networking sites also help these people to increase their confident in socialization and hence overcome their low self-esteem and enhance their communication skills. The interaction between them with other people will not be a problem later on since they have already talked and interacted online. Thus, I believe that social networking sites bring more benefits to people. Besides, people can share their thoughts on the social networking sites. Social networking sites act as a forum where people around the world are able to give their opinions on certain topics that we shared on our profile. For example, the hot topic for this year is the abandoned of helpless babies by irresponsible fathers or mothers. In this case, people can always share their opinions on some certain hot topics by just updating their status in their profile. Meanwhile, the secondary students, collegues and universities students may discuss about their homeworks, Journal ritings and assignments too. They can gain some new knowledge and get to know other peoples opinion which can help them to write better essays. They can also learn about other countries cultures and t li estyles where the intormations mig useful in their future. The social networking sites also provide a good way for people to release their pressure. These sites especially Facebook provide entertainments such as mini games or videos and songs applications. The users of Facebook can use these applications to release their daily life pressure. They can also release their problems by updating their status by using Facebook or Twitter. These social networking sites are certainly convenient especially for people who are always busy with their works as they can be access easily via mobile. Therefore, these websites will give people benefits as long as the people are using them in the proper way. Some social networking sites are also acting as good places to find a Job for those who are Jobless. Most people knows that the best way to find a Job is through social etworking sites. Nowadays the big companiese have specialists on human resources that search for profiles in these kind of sites to recruit new collaborators. Therefore, those who are Jobless can create a profile and describe their capabilities and publish some of their works on the profile created. This might enhance their chances to be discovered and recruited by a company although it is a matter of luck. In conclusion, I totally agree that social networking sites bring more benefits than harms if we use it correctly. It is impossible to have events involving child predators and other dangerous individuals using these sites if and only if the parents guide their children to make use of these sites responsibly. Besides, if we want to build our reputation and have more friends well need to participate more in social networking. An old sayings sing that going to the gym and doing a few reps will not make you a body builder. Therefore, people should have involve themselves more in social networking so that they can make fully use of these websites which benefits them a

Porsche 928 free essay sample

For products purchase, a customer who needs a certain product does not straight jump to purchase decision as right decision would not be so easily made, especially for high involvement products such as cars. The buyer decision process is the decision making process undertaken by consumers, which consists of five stages: problem recognition, information search, alternative evaluation, purchase decision, and lastly post-purchase behaviour. If we analyze the buyer decision process of a traditional Porsche customers stepwise, we can see that they buy Porsche because they see themselves in it. Now, let’s elaborate.. a) Need recognition; The profile of a Porsche car buyer is financially successful person that loves challenge. Basically, Porsche is more than a utility car for its buyers. Its customers’ motive is to enjoy the car not just use it. Financially successful people are the main customers of Porsche. They want their car to represent how successful they are. We will write a custom essay sample on Porsche 928 or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page This brand itself is an image of exclusivity. Hence, we can say that the buyers of Porsche do not primarily need a car for transport. Rather, they buy it for satisfaction, enjoyment and uniqueness regardless of the car’s price, size, fuel economy and other practical considerations. b) Information search: Traditional Porsche buyers search information for the right car to represent how successful they are. As the brand is popular for its distinctiveness, their buyers do not really get affected by the information but by strong and satisfying feelings. As Porsche’s low volume and fragmented auto market enhances its matchlessness, the buyers do not need information search process much. c) Evaluation of alternatives: Traditional Porsche’s customers are totally focused on a car which reflects their identity. These individuals see themselves not as part of the regular world but as exception to it. As Porsche’s image of exclusivity cannot be compared to any other cars , their buyers do not tend to prioritize on other alternatives and just go for Porsche. d) Purchase decision: Their customers’ purchase decision is based on their expectation and satisfaction. People buy Porsche because they enjoy driving it. As, they see themselves in their cars, they decide to buy a car which is completely a reflection of their image. After the consumer has evaluated all the options and would be having the intention to buy the product, there could be now only two things which might just change the decision of the consumer of buying the product that is what the other peers of the consumer think of the product and any unforeseen circumstances. Unforeseen circumstances for example in this case could be financial losses, which led to not buying of the product. Hence, the purchase decision is solely based on their belief and pleasure. e) Post purchase behavior: Before buying a Porsche car a potential Porsche buyer has a certain expectation considering the car and the extra service you get from de car company. After the purchase the consumer might just go through post purchase dissonance in which the consumer feels that buying the other product would be better. If the company reacts on this and make expectation match reality the buyer obviously will repeat its purchase the next time it’s planning to buy a vehicle. This will create a brand loyalty that results to committed customers that won’t switch from brands when they planning to buy another car. The customers feedback towards Porsche is always loyal. Their devotion towards the brand is substantial. Since they get their desired satisfaction from Porsche, they reward the brand with dependability and eternal faith. 2) Contrast the traditional Porsche customer decision process to the decision process for a Cayenne or a Panamera customer. Well, traditional Porsche customers mainly focus on the image of exclusivity regardless of the car’s speed, size and practical conditions. The traditional Porsche customers skip most of the decision process and jumps right into the purchase decision. To the contrary, Cayenne or Panamera customers are looking for style, family car and speed. The differences between traditional Porshe customer decision process and decision process for a Cayenne customer are mentioned below: a) Need recognition: Traditional Porsche customer desire for a car which is as sophisticated as they are. Their main focus is on exclusivity. They want to interpret their life style through their car. They are ready to spend lavishly on a car just because they consider Porsche to be their mirror. It’s all about personality, style and self-satisfaction. A traditional Porsche customer is more concerned about the way the car sounds, vibrates and feels. Whereas, Cayenne customers are looking for both family car and speed. Their need is to have a larger vehicle that can accommodate more than two people. Mainly, they want a car which has good speed, size and style but still feel like a Porsche. b) Information search: Traditional Porsche buyers do not need much information search because they like Porsche because it is a Porsche. Its brand image itself is enough to lead them to a decision. Conversely, Cayenne customers are influenced by the fact that Cayenne is a sports utility vehicle designed in a family style. It has seatbelts for five but still it is developed as a luxury vehicle and the driving experience is as splendid as driving a traditional Porsche. To sum up, Cayenne buyers search for a deluxe vehicle with good size and speed. c) Evaluation of alternatives: Traditional Porsche customers are highly ambitious people and they aim for a car which is on the top notch. No other car can alternate Porsche for its lotal customer. So, there is no competition with any other car. To the contrary, Cayenne buyers have lots of questions in their mind like â€Å"Is there any car to handle both luxurious and practical points? †,† Is there any car which can drive as smoothly as Porsche and as speedily as a sports car? † They look for the price, size, style and other practical considerations. They attach degrees of importance to each attribute. Hence, they compare various features of a car before concluding into a decision. d) Purchase decision: Purchase decision of a traditional Porsche buyer is determined by customer expectation and satisfaction. They don’t take many things into consideration before making a decision. Only thing that matters is a having a luxurious car which can enhance their personality. On the other hand, Cayenne customers purchase decision is based upon the infrastructures of the car. They decide to buy a car which is deluxe, comfortable, well-equipped, high-speed, immense and full of many features. Taking all these factors into consideration, the customers develop the purchase intention of buying a Cayenne. An example of perfectness is 444 Horsepower Cayenne Turbo, a two and half ton beast could accelerate to 60 miles per hour in just over five seconds and hit 165 miles per hour, all while coddling five adults in sumptuous leather seats with almost no wind noise from the outside world. e) Post purchase behaviour: Traditional Porsche buyers are loyal to the brand and they enjoy being a Porsche owner. In opposition, Cayenne customers adopted the new model. But they are still loyal to Porsche because of the wonderful and enjoyable experience of performance and luxury. 3) Which concepts from the chapter explain why Porsche sold so many lower-priced models in the 1970s and 1980s? First, we can see that Porsche AG uses penetration pricing. This causes less profit for the new product but will create demand. Cultural, Social concept Porsche wants to be seen as a product better then their competitors. They create a status for themselves to interest the high class consumers. These consumers want to be seen as superior than others. Driving a Porsche shows off luxury, class and status. The company focuses on social class and status to advertise their cars. The lower-priced cars were never really accepted by loyalists of Porsche. They did not like sharing their brand with a customer who didn’t fit the Porsche owner profile. They chosen Mass over class marketing. After these years Porsche realized: â€Å"We’re not looking for volume, we’re searching for exclusivity†. Porsche used differentiated marketing strategy to target several market segments and designs separate offers for each. After this Porsche used undifferentiated (mass) marketing. Aiming at just high class cars. (Chapter 6) It also developed a special kind of SUV which was a smart move since it did not feel like a SUV. The text case described the SUV being â€Å"soundless, comfortable and fast†. Porsche was founded in 1931 by Ferdinand Porsche. Ferdinand created the Volkswagen beetle also known as the people’s car of Adolf Hitler. One of the most successful car designs of all time. The first years Porsche only created beetles for German citizens while created tanks for the German army. Between 1950 and 1970 Porsche created a few cars that were exclusive. Designs of the new Porsches made it hard to drive the new Porsche because the end swung when the car made a turn. This made is challenging to drive. It’s target group was successful people. Achievers who saw themselves as entrepreneurs, even if they worked in a corporation. They were not part of society but a group above the rest. 4) Explain how both positive and negative attitudes toward a brand like Porsche develop. How might Porsche change consumer attitudes toward the brand? An attitude describes a person’s favourable or unfavourable evaluations, feelings, and tendencies towards an object or idea. Top managers at Porsche spend a great deal pf time thinking about customers . But still customers develop both positive and negative attitudes towards a brand like Porsche. Consumer behaviour results from a complex interplay of cultural, social, personal, and psychological factors. Cultural factors include the social class. Positive attitude towards Porsche develops when Porsche gives a chance to show its consumer status in the society and separate them from the lower class. While negative attitude towards Porsche develops when the brand does not represent the exclusivity and the customers are not satisfied with the produced image anymore. To fund innovation and to commercialize, Porsche extended its brand outside the box which resulted in the loss of many loyal customers of Porsche. Porsche faithful considered the new models to be underperforming and they didn’t accept the models as real Porsche. For ex: When Porsche developed lower price models in the 1970s and 1980s , many lower class people could afford Porsche. But those individuals who used to buy Porsche for its uniqueness started developing negative attitude towards Porsche because they couldn’t see their reflection in Porsche any longer. Porsche can change customer attitude by increasing its performance to meet consumers’ expectations. It can enhance quality of its car that keeps up the customer image high and unique, where they enjoy the experience of driving rather than transportation. Porsche should keep the image of their high performance on behalf of upper-social level of customer who enjoy Porsche just because it is a Porsche. Its customers search their personality and their identity in their cars. Hence, Porsche can gain its reputation by creating replica of their customers in their cars. Negative attitudes of customers might be changed by creating new models without losing the real Porsche feel. By doing so, traditional customers will be satisfied because they can get the image of exclusivity for which Porsche is well-known. Also, new customers might get attracted because of the new and advanced model which has style, speed, comfort and individuality. 5) What role does the Porsche brand play in the self-concept of its buyers? Porsche brand develops one’s sensing of the self-concept, and the self-image of being successful and wealthy by producing very unique and luxurious vehicles, focusing on the appearance of the vehicles more than the performance, highlighting on designing vehicles that would reinforce the feeling of success and reflecting the customers’ high self-esteem, their roles, and their status. Porsche permits its customers to develop a self-concept of wealth and success. Porsche is developed to be a rather unusual product than the average vehicle. Porsche is developed for the higher-classes. Because Porsche customers buy Porsche because they want to be seen and want to show off with their wealth and success. That’s one of the reasons why Porsche realize that customers buy Porsche for its appearance rather than functionality. Quoted â€Å"Most Porsche buyers are not moved by information but by feelings. A Porsche is like a piece of clothing – something the owner â€Å"wears†Ã¢â‚¬  This brand allows people to live through an image that is developed by the brand, which is aimed at reflecting one’s success and wealth. By creating significant reputation about their product and the name they fulfill their customer’s needs and self-concept. Porsche sells its products to a certain class of individuals who wants to stand out above everyone else. Porsche had realized that they needed to improve their sales level and therefore they have extended their market by taking the poor in consideration (the Porsche 944 which was 10k less expensive than the 911) through the production of other types like the Cayenne and the Panamera. They aimed at improving their reputation after some image losses by focusing on the poor. Besides improving their reputation they were aiming at extending their market. By launching types of Porsche like the Cayenne and the Panamera they get the opportunity to venture into new segments of the market. Which directly had a positive impact on the company’s its sales and reputation. This strategy has helped Porsche a lot, because Porsche is now not completely focusing on a narrow customer group any more, but on a wider range of target audience.