Valuing an LBO Exit

ABC Capital Partners is considering the acquisition of a manufacturing company through a leveraged buyout (LBO). The target company has a projected free cash flow (FCF) of $10 million in Year 1, growing at an annual rate of 5%. ABC Capital Partners intends to finance 70% of the purchase price with debt, and they expect to exit the investment after five years.

Given that interest on the debt is 8% and the required return on equity is 15%, what is the estimated enterprise value (EV) of the target company at the exit in Year 5, assuming a terminal EBITDA multiple of 6x and that EBITDA in Year 5 is projected to be $20 million?