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LBO Model (Breaking into Wall Street)
Exam Questions And Answers |Latest 2025 |
Guaranteed Pass.
Walk me through a basic LBO model? - Answer✔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
Why would you use leverage when buying a company? - Answer✔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 other companies because they've used leverage.
What variables impact an LBO model the most? - Answer✔1) Purchase and exit multiples
biggest return 2)leverage used 3)operational characteristics such as revenue growth and
EBITDA margins
How do you pick purchase multiples and exit multiples in an LBO model? - Answer✔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.
What is an "ideal" candidate for an LBO? - Answer✔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
1
LBO Model (Breaking into Wall Street)
Exam Questions And Answers |Latest 2025 |
Guaranteed Pass.
Walk me through a basic LBO model? - Answer✔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
Why would you use leverage when buying a company? - Answer✔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 other companies because they've used leverage.
What variables impact an LBO model the most? - Answer✔1) Purchase and exit multiples
biggest return 2)leverage used 3)operational characteristics such as revenue growth and
EBITDA margins
How do you pick purchase multiples and exit multiples in an LBO model? - Answer✔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.
What is an "ideal" candidate for an LBO? - Answer✔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
1
