Investment Banking ( calculation and short answer) - Essay Example

The accretion analysis provides an platform for evaluating control premium of purchasing the acquisition and hence its profitability. Further, accretion analysis is also triggered by the need to evaluate project earnings from for an acquisition. Intuitively, application of accretion analysis helps the acquirer to evaluate the effect of the acquisition on the expected earnings per share and hence the ability of the project to provide favorable earnings. In LBO, assuming the sponsor sells ValueCo at the end of year 5 at an exit multiple equal to its entry multiple, determine enterprise value and equity value at exit given the ending debt balances provided.

Based on equity returns and leverage levels, LBO analysis helps in evaluating purchase price. Intuitively, the firm would have to calculate the maximum price that can yield enoughreturns and also cover the debt levels. In which case, the firm in questin will apply LBO analysis to determine a maximum price through the calculation of IRR. Consequently, this ensure that the expected equity returns from the investment is adequate and can cover administrative costs and expenses for the operations.

A financial buyer can also use LBO analysis to serve in characterizing the leverage and equity at various prices available for the investment. The financial buyer would consider it suitable to choose a price that would readily yield expected returns on equity for the post-transataction. Further, evaluating the charateristics of the price also allows the buyer to make a decision that would increase the potential returns from the financial leverage of the same. In this case, IRR is an essential tool used in the analysis to depict the charactertisitcs of the various prices.

In a case of absence of a strategic buyer for the transaction, LBO analysis proves essential in making LBO firms to be willing buyers. Through determining