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Lbo modeling exam from wall street prep QUESTIONS AND ANSWERS (2024/2025) (VERIFIED ANSWERS)
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Lbo modeling exam from wall street prep QUESTIONS AND ANSWERS (2024/2025) (VERIFIED ANSWERS)
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Lbo modeling exam from wall street prep1. Walk me through a basic LBO model?: 1) Assumptions of purchase
price, debt/equity ratio, interest rate on debt, and other variables and
you might assume something about company's revenue growth or
margins. 2)Create sources & uses section 3) Adjust company's balance
sheet for the new debt, equity, Goodwill, and other intangibles. 4)
Project company's income statement, balance sheet, and cash flow
statement and determine debt schedule. 5)Assumptions about EBITDA
exit multiple and calculate return based on how much equity is returned
to the firm
2. Why would you use leverage when buying a company?: 1) Boost return,
since debt is not "your money". Easier to earn a higher return on a $5
bil company with $2 bil of your money and $3 bil than $3 bil of your
money and $2 bil. 2)Firm also has more capital available to purchase
1/
, other companies because they've used leverage.
3. What variables impact an LBO model the most?: 1) Purchase and exit
multi- ples biggest return 2)leverage used 3)operational characteristics
such as revenue growth and EBITDA margins
4. How do you pick purchase multiples and exit multiples in an LBO mod-
el?: 1)Same as others, look at comparable companies are trading at
and what multiples similar LBO transactions have had. Sensitivity
analysis of purchase and exit multiples.
2)Sometimes you set purchase and exit multiples based on specific IRR
target that you're trying to achieve.
5. What is an "ideal" candidate for an LBO?: 1) Stable and predictable cash
flows
2) low-risk businesses 3) low capex 4) opportunity for expense
reductions to boost margins 5)Strong management team 6) base of
assets to use as a collateral for debt
2/
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