8/29/25, 5:20 AM LBO model
LBO Modeling Study Guide Exam 2025-2026 \private
Equity & Investment Banking Interview Prep Exam
\complete questions and accurate detailed answers
\verified 100% \latest update
IRR is the effective compounded interest rate or the
1. How do you calculate the
average annualized return. Calculate IRR by making the
internal rate of return (IRR)
initial Investor Equity negative and all cash proceeds
in an LBO model, and what
(dividends or sale proceeds) positive, then apply the
does it mean?
IRR function in Excel. The
formula is: IRR = (Exit Proceeds / Investor Equity)^(1 / # Years) - 1.
Yes, use these rules of thumb: 2x in 3 years ≈ 25% IRR, 2x
2. How can you quickly
in 5 years ≈ 15% IRR, 3x in 3 years ≈ 45% IRR, 3x in 5
approximate IRR in an
years ≈ 25% IRR. For values in between, interpolate (e.g.,
LBO? Are there any rules
2.5x in 5 years ≈ 20% IRR).
of thumb?
3. A PE firm acquires a $100M Initial Equity = $400M ($1B 40%). Exit Enterprise Value
EBITDA = $150M 9 = $1.35B. Debt at exit = $350M ($600M -
company for a 10x purchase
$250M). Equity Proceeds = $1.35B - $350M = $1B. IRR ≈
multiple, using 60% Debt.
20% (2.5x in 5 years).
EBITDA grows to $150M by
Year 5, but the exit
multiple drops to 9x. The
company repays $250M of
Debt. What's the IRR?
4. A PE firm acquires a Purchase EV = $1.2B. Exit EV = $1.8B. No Debt repaid, so
$200M EBITDA company $600M remains. Equity Proceeds = $1.8B - $600M =
using 50% Debt at 6x $1.2B. 2x multiple in 3 years ≈ 25% IRR.
EBITDA.
EBITDA grows to $300M in 3
years, with no Debt
repayment or cash
generation. What is the
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, 8/29/25, 5:20 AM LBO model
minimum IRR?
5. How does the IRR change if Exit EV = $1.8B. With all Debt repaid, Equity Proceeds = $1.8B. 3x
the multiple in 3 years ≈
company repays all Debt but 45% IRR.
nothing else changes?
6. You buy a $100M EBITDA Purchase EV = $1B, using $500M in Debt and $500M in
business for 10x EBITDA and Equity. Exit proceeds for 2.5x IRR = $1.25B. Remaining
sell it at the same multiple in Debt = $250M. EV needed = $1.25B + $250M = $1.5B.
5 years. Debt/EBITDA = 5x EBITDA must grow to $150M (since 10x EV = $1.5B).
and the company repays
50% of Debt. How much
must EBITDA grow to
achieve a 20% IRR?
7. A PE firm acquires a Purchase EV = $1.2B. Investor Equity = $700M. Exit EV
business at 12x EBITDA needed for 3x multiple = $2.1B. With $200M EBITDA, Exit
using 5x Debt/EBITDA. Multiple = $2.1B / $200M = 10.5x.
EBITDA grows from
$100M to $200M in 5
years.
What exit multiple is required
for a 25% IRR with no Debt
repayment?
8. What if the company Remaining Debt = $125M (75% of $500M repaid). Exit EV needed =
repays 75% of Debt over 5 $2.1B + $125M =
$2.225B. Exit Multiple = $2.225B / $200M = 11.1x.
years?
9. A PE firm acquires a $200M Purchase EV = $1.6B, with $800M in Equity. Exit EV = $2.4B. With
EBITDA Debt repaid,
company for 8x EBITDA, proceeds = $2.4B. 3x in 3 years ≈ 45% IRR, but IPO
using 50% Debt. EBITDA proceeds split over 3-5 years, averaging ≈ 35% IRR.
grows to $240M in 3 years
and all Debt is repaid. The
PE firm IPOs the
company and sells evenly in
Years 3-5 at 10x EBITDA.
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LBO Modeling Study Guide Exam 2025-2026 \private
Equity & Investment Banking Interview Prep Exam
\complete questions and accurate detailed answers
\verified 100% \latest update
IRR is the effective compounded interest rate or the
1. How do you calculate the
average annualized return. Calculate IRR by making the
internal rate of return (IRR)
initial Investor Equity negative and all cash proceeds
in an LBO model, and what
(dividends or sale proceeds) positive, then apply the
does it mean?
IRR function in Excel. The
formula is: IRR = (Exit Proceeds / Investor Equity)^(1 / # Years) - 1.
Yes, use these rules of thumb: 2x in 3 years ≈ 25% IRR, 2x
2. How can you quickly
in 5 years ≈ 15% IRR, 3x in 3 years ≈ 45% IRR, 3x in 5
approximate IRR in an
years ≈ 25% IRR. For values in between, interpolate (e.g.,
LBO? Are there any rules
2.5x in 5 years ≈ 20% IRR).
of thumb?
3. A PE firm acquires a $100M Initial Equity = $400M ($1B 40%). Exit Enterprise Value
EBITDA = $150M 9 = $1.35B. Debt at exit = $350M ($600M -
company for a 10x purchase
$250M). Equity Proceeds = $1.35B - $350M = $1B. IRR ≈
multiple, using 60% Debt.
20% (2.5x in 5 years).
EBITDA grows to $150M by
Year 5, but the exit
multiple drops to 9x. The
company repays $250M of
Debt. What's the IRR?
4. A PE firm acquires a Purchase EV = $1.2B. Exit EV = $1.8B. No Debt repaid, so
$200M EBITDA company $600M remains. Equity Proceeds = $1.8B - $600M =
using 50% Debt at 6x $1.2B. 2x multiple in 3 years ≈ 25% IRR.
EBITDA.
EBITDA grows to $300M in 3
years, with no Debt
repayment or cash
generation. What is the
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, 8/29/25, 5:20 AM LBO model
minimum IRR?
5. How does the IRR change if Exit EV = $1.8B. With all Debt repaid, Equity Proceeds = $1.8B. 3x
the multiple in 3 years ≈
company repays all Debt but 45% IRR.
nothing else changes?
6. You buy a $100M EBITDA Purchase EV = $1B, using $500M in Debt and $500M in
business for 10x EBITDA and Equity. Exit proceeds for 2.5x IRR = $1.25B. Remaining
sell it at the same multiple in Debt = $250M. EV needed = $1.25B + $250M = $1.5B.
5 years. Debt/EBITDA = 5x EBITDA must grow to $150M (since 10x EV = $1.5B).
and the company repays
50% of Debt. How much
must EBITDA grow to
achieve a 20% IRR?
7. A PE firm acquires a Purchase EV = $1.2B. Investor Equity = $700M. Exit EV
business at 12x EBITDA needed for 3x multiple = $2.1B. With $200M EBITDA, Exit
using 5x Debt/EBITDA. Multiple = $2.1B / $200M = 10.5x.
EBITDA grows from
$100M to $200M in 5
years.
What exit multiple is required
for a 25% IRR with no Debt
repayment?
8. What if the company Remaining Debt = $125M (75% of $500M repaid). Exit EV needed =
repays 75% of Debt over 5 $2.1B + $125M =
$2.225B. Exit Multiple = $2.225B / $200M = 11.1x.
years?
9. A PE firm acquires a $200M Purchase EV = $1.6B, with $800M in Equity. Exit EV = $2.4B. With
EBITDA Debt repaid,
company for 8x EBITDA, proceeds = $2.4B. 3x in 3 years ≈ 45% IRR, but IPO
using 50% Debt. EBITDA proceeds split over 3-5 years, averaging ≈ 35% IRR.
grows to $240M in 3 years
and all Debt is repaid. The
PE firm IPOs the
company and sells evenly in
Years 3-5 at 10x EBITDA.
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