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Lbo modeling exam from wall street prep latest
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Lbo modeling exam from wall street prep 2024 latest
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LBO Model Questions and Answers 20241. Walk me through a basic LBO Model.: In an LBO Model, Step 1 is making
assumptions about the Purchase Price, Debt/Equity Ratio, Interest Rate on Debt
and other variables; you might also assume something about the company's
operations such as Revenue Growth or Margins, depending on how much
information you have.
Step 2 is to create a Source and Use section, which shows how you finance the
transaction and what you use the capital for; this also tells you how much Investor
Equity is requried,
Step 3 is to adjust the company's Balance Sheet for the new Debt and Equity
figures, and also add in Goodwill and Other Intangibles on the Assets side to
make everything balance.
Step 4, you project out the company's income statement, balance sheet and Cash
Flow Statement, and determine how much debt is paid off each year, based on
the available Cash Flow and the required Interest Payments.
Finally, in Step 5, you make assumptions about the exit after several years,
usually assuming an EITDA Exit Multiple, and calculate the return based on how
much equity is returned to the firm.
2. What is a leveraged buyout?: In an LBO, a private equity firm will acquirer
another company using a combination of debt and equity, they'll operate the
company and sell the company at the end to hopefully realize a return on the
investment.
The PE firm will use the cash flows generated to pay off the interest expense on
Debt and often the principal payment its self.
The acquired company is often used collateral for the debt and this method works
because leverage amplifies returns.
3. Why do PE firms uses leverage when buying companies?: To amplify
returns. Leverage does not "increase returns" just increases the effects of
outcome. Positive returns will become even more positive and negative returns
will become even more negative.
It also frees up cash for a PE firm to do something else with capital
, LBO Model Questions and Answers 2024
4. Walk me through a basic LBO MODEL?: In an LBO Model, in
Step 1 we will make assumptions for the Purchase Price, Debt and Equity, Interest
Rate on Debt, and other variables such as the company's revenue growth and
margins.
In Step 2 you create a Sources and Uses schedule to show exactly how much in
Investor Equity the PE firm contributes; you also create a Purchase Price Allocation
schedule to calculate the Goodwill.
In Step 3 you adjust the company's balance sheet for new debt and equity figures,
allocate the purchase price and add goodwill and other intangibles to asset side to
make everything
In Step 4 you project the company's Income Statement, Balance sheet, and cash
flow statement, and determine how much Debt it repays each year based on its
Free Cash Flow FCF
Finally, in Step 5, you make assumptions about the exit, usually assuming EBITDA
Exit multiple and you calculate the IRR and Money-on-Money multiple based on the
proceeds the PE firm earns at the end.
5. In an LBO Model, in
Step 1 we will make assumptions for the Purchase Price, Debt and Equity,
Interest Rate on Debt, and other variables such as the company's revenue
growth and margins.
In Step 2 you create a Sources and Uses schedule to show exactly how much
in Investor Equity the PE firm contributes; you also create a Purchase Price
Allocation schedule to calculate the Goodwill.
In Step 3 you adjust the company's balance sheet for new debt and equity
figures, allocate the purchase price and add goodwill and other intangibles to
asset side to make everything
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