Paper LBO on a media business: buy at 10 times EBITDA of Rs 80 crore with 5 times debt at 10%, EBITDA grows 8%, all free cash flow after interest repays debt, and exit at 10 times in year five. Then answer quickly: what if exit is 9 times, leverage is 6 times, or growth is 4%?

The base case returns about 2.5 times the money, an IRR of about 20%. Year-five EBITDA of Rs 118 crore at 10 times is Rs 1,175 crore; debt has fallen to about Rs 181 crore, leaving Rs 994 crore of equity on Rs 400 crore. A 9 times exit cuts the IRR to about 17%, 6 times debt lifts it to about 22%, and 4% growth drops it to about 13%.

Set the frame first: Rs 800 crore price, Rs 400 crore of debt, Rs 400 crore of equity. Then grow EBITDA: 8% for five years is about 1.47 times, so Rs 118 crore in year five, and Rs 1,175 crore at the exit multiple. Free cash flow is EBITDA less capex, interest and tax, and because interest falls as debt is repaid, the cash for repayment grows each year, from about Rs 27 crore to about Rs 62 crore. Like a home loan prepaid from every bonus, each year's prepayment makes the next year's interest smaller.

Exit equity is Rs 1,175 less Rs 181 crore, about Rs 994 crore. That is 2.49 times the money; 2.5 times in five years is close to 20% a year, and the exact IRR is 20.0%. Know the anchors by heart: 2 times in five years is about 15%, 2.5 times about 20%, 3 times about 25%. They let you answer the changed-terms questions in seconds.

Answer each with the bridge, not by rebuilding the model. A 9 times exit removes one turn of year-five EBITDA, about Rs 118 crore, from equity: Rs 877 crore, 2.19 times, an IRR of 17.0%. Six times debt means Rs 480 crore borrowed and only Rs 320 crore of equity; extra interest slows repayment, but the smaller cheque dominates: 2.75 times and 22.4%. Growth of 4% leaves year-five EBITDA at Rs 97 crore, so both exit value and cash for repayment fall: 1.86 times and 13.3%.

The return depends on the business and the exit price far more than on the financing, so diligence time belongs on growth and on what a buyer will pay in five years. For a media company that means the streaming app's subscriber growth and whether television advertising is shrinking: if it is, 8% is ambitious and the exit multiple may fall too, and the two downsides compound. The extra turn of debt buys 2.4 points of IRR at the cost of first-year EBITDA covering interest only 1.8 times, thin for a business exposed to the advertising cycle. A sponsor should not borrow more to rescue a return that the business plan cannot deliver.