TRANSACTION COMPS AND LBO MODELING
EXAM CERTIFICATION EVALUATION EXAMS
2026 QUESTIONS WITH SOLUTIONS
GUARANTEED PASS
◉ What is the typical projection period for an LBO model? Answer:
Seven to ten years.
◉ What is the 'Management Case' in LBO modeling? Answer: A
scenario based on management projections for sales through EBIT.
◉ What is the 'Base Case' in LBO modeling? Answer: A more
conservative operating scenario developed by the deal team.
◉ What are 'Downside Cases' in LBO analysis? Answer: Scenarios
that present the target's financial performance with reduced growth
and margins.
◉ What is the purpose of the 'Sponsor Case'? Answer: To set
covenants and market the transaction to investors.
,◉ What is included in the opening balance sheet for the pre-LBO
model? Answer: Traditional balance sheet accounts and new items
for the LBO financing structure.
◉ What does the cash flow statement consist of? Answer: Operating
activities, investing activities, and financing activities.
◉ What is the first line item in the cash flow statement? Answer: Net
income.
◉ How is capex typically projected in LBO models? Answer: As a
fixed percentage of sales at historical levels.
◉ What is the purpose of the sources and uses table in LBO
transactions? Answer: To summarize the flow of funds required to
consummate a transaction.
◉ What must the sum of sources of funds equal? Answer: The sum
of uses of funds.
◉ What is goodwill in the context of an LBO? Answer: The excess
amount paid for a target over its net identifiable assets.
,◉ How is the debt schedule used in an LBO model? Answer: To layer
in the pro forma effects of the LBO financing structure.
◉ What does the debt schedule calculate? Answer: Annual beginning
and ending balances for each debt tranche.
◉ What is the typical amortization schedule for term loans in LBO
models? Answer: 1% amortization per year with a bullet payment at
maturity.
◉ What is a '100% cash flow sweep' in LBO models? Answer:
Assuming all cash generated is applied to optional debt repayments.
◉ What is the significance of IRR in LBO analysis? Answer: It
measures the sponsor's investment returns.
◉ What is the typical target IRR for sponsors in LBO transactions?
Answer: 15-20%.
◉ What does sensitivity analysis in LBO analysis assess? Answer:
Key value drivers such as entry and exit multiples, leverage levels,
and growth rates.
, ◉ What is the purpose of the transaction summary page in an LBO
model? Answer: To provide an overview of the LBO analysis in a
user-friendly format.
◉ What is the role of the deal team in LBO analysis? Answer: To
review and spot-check the analysis and make adjustments as
necessary.
◉ What is the primary credit risk management concern for
underwriters in LBO analysis? Answer: The target's ability to service
its annual interest expense and repay debt.
◉ What is the significance of the leverage and coverage ratios in LBO
analysis? Answer: They are used to analyze the target's ability to
support a given capital structure.
◉ What is the expected outcome of a successful LBO analysis?
Answer: To determine an appropriate valuation range for the target.
◉ What is the difference between cash interest expense and total
interest expense? Answer: Cash interest expense is actual cash
payments, while total interest expense includes non-cash charges.
◉ How is net income linked in the cash flow statement? Answer: As
the first line under operating activities.
EXAM CERTIFICATION EVALUATION EXAMS
2026 QUESTIONS WITH SOLUTIONS
GUARANTEED PASS
◉ What is the typical projection period for an LBO model? Answer:
Seven to ten years.
◉ What is the 'Management Case' in LBO modeling? Answer: A
scenario based on management projections for sales through EBIT.
◉ What is the 'Base Case' in LBO modeling? Answer: A more
conservative operating scenario developed by the deal team.
◉ What are 'Downside Cases' in LBO analysis? Answer: Scenarios
that present the target's financial performance with reduced growth
and margins.
◉ What is the purpose of the 'Sponsor Case'? Answer: To set
covenants and market the transaction to investors.
,◉ What is included in the opening balance sheet for the pre-LBO
model? Answer: Traditional balance sheet accounts and new items
for the LBO financing structure.
◉ What does the cash flow statement consist of? Answer: Operating
activities, investing activities, and financing activities.
◉ What is the first line item in the cash flow statement? Answer: Net
income.
◉ How is capex typically projected in LBO models? Answer: As a
fixed percentage of sales at historical levels.
◉ What is the purpose of the sources and uses table in LBO
transactions? Answer: To summarize the flow of funds required to
consummate a transaction.
◉ What must the sum of sources of funds equal? Answer: The sum
of uses of funds.
◉ What is goodwill in the context of an LBO? Answer: The excess
amount paid for a target over its net identifiable assets.
,◉ How is the debt schedule used in an LBO model? Answer: To layer
in the pro forma effects of the LBO financing structure.
◉ What does the debt schedule calculate? Answer: Annual beginning
and ending balances for each debt tranche.
◉ What is the typical amortization schedule for term loans in LBO
models? Answer: 1% amortization per year with a bullet payment at
maturity.
◉ What is a '100% cash flow sweep' in LBO models? Answer:
Assuming all cash generated is applied to optional debt repayments.
◉ What is the significance of IRR in LBO analysis? Answer: It
measures the sponsor's investment returns.
◉ What is the typical target IRR for sponsors in LBO transactions?
Answer: 15-20%.
◉ What does sensitivity analysis in LBO analysis assess? Answer:
Key value drivers such as entry and exit multiples, leverage levels,
and growth rates.
, ◉ What is the purpose of the transaction summary page in an LBO
model? Answer: To provide an overview of the LBO analysis in a
user-friendly format.
◉ What is the role of the deal team in LBO analysis? Answer: To
review and spot-check the analysis and make adjustments as
necessary.
◉ What is the primary credit risk management concern for
underwriters in LBO analysis? Answer: The target's ability to service
its annual interest expense and repay debt.
◉ What is the significance of the leverage and coverage ratios in LBO
analysis? Answer: They are used to analyze the target's ability to
support a given capital structure.
◉ What is the expected outcome of a successful LBO analysis?
Answer: To determine an appropriate valuation range for the target.
◉ What is the difference between cash interest expense and total
interest expense? Answer: Cash interest expense is actual cash
payments, while total interest expense includes non-cash charges.
◉ How is net income linked in the cash flow statement? Answer: As
the first line under operating activities.
