In this basic LBO Modeling Primer, we're going to buy a company. Our entry will be at the beginning of year one. We've got an EV of five, we're going to put it in a lot of debt, three and equity of two. What we hope to do over time is get a return on that equity of two that we've put in. So what happens over the life of the ownership of this target company? Well, hopefully the EBITDA is going to increase, we might be able to grow the company, maybe reduce some of its costs. And a big impact of that will be that it should increase the enterprise value. So we're going to have exit here at the end of year five, i.e. five years after entry, and EV has gone up to nine. Secondly, our debt is going to decrease, we're going to be diverting as many cash flows as possible towards getting that debt down. So our debt here has gone from three to two. The result of this is the balancing figure, and it must be equity, our equity has increased from two to seven. This will hopefully lead to a positive IRR. We could use the basic IRR formula here, exit equity over entry to the power of one over N, the number of periods, minus one. In this case, it gives us an IRR of 28.5%. Alternatively, we could use the Excel functions, we could use the IRR function, which returns the IRR for periodic cash flows, cash flows, which are evenly spaced. If they're not going to be evenly spaced, you can use the XIRR function. This returns the IRR for cash flows that are not necessarily periodic. So a big part of the model is trying to work out those figures at entry. What's the EV? What's the debt? What's the equity? We'll have to use sources and uses to do that. We'll then have to create a model, which will then help us work out our EV, debt and equity at the end of year five. And a large part of that model is working out your debt and the cash flows available to pay off that debt, and then we'll work out the IRR at the end.