Leveraged Buyout Financial Analysis

The video tutorial discusses a stable business generating $1 million net income annually. The owner considers selling due to retirement, receiving a $10 million offer. The buyer uses a leveraged buyout strategy, investing $1 million and borrowing $9 million from a bank. The business's stable income covers the loan interest, resulting in a $400,000 net income for the buyer, showcasing the benefits of leveraging in business acquisitions.

What is the annual net income of the business before any sale or leverage?

• $1,000,000

• $500,000

• $2,000,000

• $1,500,000

How much is the business valued at in the offer made to the owner?

• $20 million

• $5 million

• $10 million

• $15 million

What percentage of the purchase price does the buyer plan to borrow from the bank?

• 100%

• 70%

• 90%

• 50%

What is the interest rate on the loan taken by the buyer?

• 5%

• 12%

• 8%

• 10%

What is the total amount of debt in the new capital structure after the leveraged buyout?

• $10 million

• $9 million

• $5 million

• $1 million

What is the pre-tax income after accounting for interest payments?

• $600,000

• $700,000

• $900,000

• $800,000

How much net income does the buyer earn annually after taxes?

• $300,000

• $500,000

• $400,000

• $200,000

What is the effective return on the buyer's initial $1 million investment?

• 20%

• 10%

• 30%

• 40%

What financial strategy did the buyer use to purchase the business?

• Debt financing

• Equity financing

• Venture capital

• Leveraged buyout

What is the main advantage of the leveraged buyout for the buyer?

• Reduced tax liability

• Increased business growth

• Higher return on investment

• Lower risk