Estimate the cash flow for the next five years

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Reference no: EM132821041

Question - A Ltd always had an eye on the Business of B Ltd despite the fact B Ltd was not doing great in business. Despite not having a healthy bottom line, B Ltd had a decent and steady cash flow.

B Ltd.s products enjoyed good reputation in the market but somehow, despite having a great technology, it could never show significant growth as it was always starved of funds and could not grow business. A Ltd, despite it being of moderate size boasted of excellent talent and had the necessary networking skills of the day. A Ltd. Was weighing the option of taking over B Ltd. through a process of Leverage buy out

It had the following information about B Ltd.:

I. Revenue - Rs. 300 million

II. EBIT - Rs. 60 million

III. Net Income - Rs. 36 million

IV. After negotiations, purchase price was settled at Rs. 145 million.

V. Banks & other Funds were ready to provide secured Loan facility for Rs. 125 million at 10%, payable in 5 annual equated instalments.

VI. Balance was contributed as equity by the promoters. Tax rate is 30%. Depreciation is 6% on Straight line method

Required -

1. Estimate the cash flow for the next 5 years and calculate the amount of Debt and Equity Funds at the end of each of the 5 years.

2. Write in a single sentence if the LBO strategy was a success for A Ltd?

Reference no: EM132821041

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