LBO returns & debt paydown / ORIGINAL SCENARIO

Cash available for debt paydown

An LBO generates EBITDA 80, cash interest 20, cash taxes 10, capex 15, increase in NWC 5. How much is available for optional debt paydown?

Amounts $m. No other cash flows, mandatory amortization, fees or minimum cash requirement. D&A irrelevant because cash taxes given.

Try it before the answer →

Worked answer

paydown: 80 − 20 − 10 − 15 − 5 = 30

Move from EBITDA to actual cash after financing costs, taxes and reinvestment.

Technical follow-ups

What if a minimum cash covenant requires retaining 8 of this cash?

If interest rates rise, explain both the immediate cash-paydown impact and the possible exit-equity consequence.

Follow-up answer guide

Retaining 8 reduces optional paydown from 30 to 22 on the original inputs; the retry generates 37 and leaves 29 if the same minimum-cash increment applies.

A fresh retry

EBITDA is 100, cash interest is 26, cash taxes are 12, capex is 18, and operating NWC increases by 7. Calculate cash available for optional debt paydown.

Amounts $m. No other cash flows, mandatory amortization, fees or minimum cash requirement. D&A irrelevant because cash taxes given.

Inspect replacement inputs

ebitda: 100
interest: 26
taxes: 12
capex: 18
nwc: 7

Check the retry bridge

paydown: 100 − 26 − 12 − 18 − 7 = 37

Original fictional example. Not a report of a specific firm’s interview. Explanations need qualified human review.