To achieve a 3x return on equity, what equity value must be attained at exit based on the scenario provided?

To achieve a 3x return on equity, what equity value must be attained at exit based on the scenario provided?

• A. 60
• B. 75
• C. 90
• D. 50

Answer: (B)

In this scenario, achieving a 3x return on equity means that the equity value at exit must be three times the initial equity investment. To clarify this, let’s assume the initial equity investment is 25 (which can be inferred from the provided return). With a 3x multiple, the calculation for the required equity value at exit would be: Initial equity investment (25) x Return multiple (3) = Required equity value at exit 25 x 3 = 75 Thus, the equity value that must be attained at exit is 75, which corresponds with the chosen answer. This calculation illustrates how returns are assessed in leveraged finance, emphasizing the importance of understanding multiples in relation to initial investments.

In this scenario, achieving a 3x return on equity means that the equity value at exit must be three times the initial equity investment. To clarify this, let’s assume the initial equity investment is 25 (which can be inferred from the provided return).

With a 3x multiple, the calculation for the required equity value at exit would be:

Initial equity investment (25) x Return multiple (3) = Required equity value at exit

25 x 3 = 75

Thus, the equity value that must be attained at exit is 75, which corresponds with the chosen answer. This calculation illustrates how returns are assessed in leveraged finance, emphasizing the importance of understanding multiples in relation to initial investments.