LBO Modeling Exam From Wall Street (Version 1& 2) Newest
2025 Exam Complete Questions And Correct Detailed Answers
(Verified Answers) |Already Graded A+
Walk me through a basic LBO model? -correct 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? -correct
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? -correct
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? -correct 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? -correct 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? -correct
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
2025 Exam Complete Questions And Correct Detailed Answers
(Verified Answers) |Already Graded A+
Walk me through a basic LBO model? -correct 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? -correct
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? -correct
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? -correct 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? -correct 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? -correct
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
