LBO Model (Breaking into Wall Street)
2024/2025 Exam Questions Marking
Scheme New Update | A+ Rated
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.
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
1
PRIVACY STATEMENT. ALL RIGHTS RESERVED
, 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
When use LBO model for valuation and why is it low? - 🧠ANSWER ✔✔Use
it to value a company by setting a targeted IRR and then back-solving in
Excel to determine purchase price for PE firm. Low because PE firms
almost always pay less than a strategic acquirer would
"Real-Life" LBO - 🧠ANSWER ✔✔Common example; mortgage on a house.
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
2
PRIVACY STATEMENT. ALL RIGHTS RESERVED
2024/2025 Exam Questions Marking
Scheme New Update | A+ Rated
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.
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
1
PRIVACY STATEMENT. ALL RIGHTS RESERVED
, 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
When use LBO model for valuation and why is it low? - 🧠ANSWER ✔✔Use
it to value a company by setting a targeted IRR and then back-solving in
Excel to determine purchase price for PE firm. Low because PE firms
almost always pay less than a strategic acquirer would
"Real-Life" LBO - 🧠ANSWER ✔✔Common example; mortgage on a house.
COPYRIGHT©PROFFKERRYMARTIN 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
2
PRIVACY STATEMENT. ALL RIGHTS RESERVED
