FINAL EXAMINATION (Acad. Year:2024-2025)
Instructions:
1. This question paper contains 1 pages.
2. Answer to each new question to be started on a fresh page.
3. Figure in right hand side indicates full marks
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1. The closing share price of ABL company on March 31, 2024 is $30. As per the latest analyst
presentation, the company has:
• Total Outstanding Shares: 500 million (fully diluted basis)
• Outstanding Debt: $600 million
• Cash & Cash Equivalents: $100 million
For FY24, consensus broker reports project:
• Total Revenue: $6,000 million
• Revenue Growth: 10% per year
• EBITDA Margin: 40%
• Free Cash Flow from Operations post interest payment (FCF Margin): 8% of Revenue
LBO investors plan to exit after 4 years (FY26) with the following assumptions:
• LBO Debt Capacity: 6× Net Debt/EBITDA
• Minimum Cash Balance: $50 million
• Required IRR: 25%
• Required Debt Paydown: $1,000 million per year
• EBITDA and FCF margins remain stable over the next 4 years
Based on this information, answer the following questions:
A. Calculate the Implied Equity Value and Implied EV of ABL Company in the exit year.
B. How much do Sponsors have to acquire the company and pay-off the debt?
C. What is the maximum amount Financial Sponsors can invest in the target company?
(Marks: 20)
2. Discuss the long/Short strategies by taking an example with a focus on Market Neutral strategies and
Leveraged Long/Short Strategies.
(Marks: 10)
3. Discuss the Convertible Arbitrage strategy through an illustrative example. Describe your actions when
the price of the underlying asset rises or falls.
(Marks: 10)
