, Walk me through a basic LBO model? - CORRECT ANSWERS -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? - CORRECT ANSWERS -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? - CORRECT ANSWERS -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? - CORRECT
ANSWERS -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.
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? - CORRECT ANSWERS -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? - CORRECT ANSWERS -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? - CORRECT
ANSWERS -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.
