LBO

LBO MODEL REVIEW EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS VERIFIED GRADED A++ Key Rule #1: What is an LBO and Why does it work A leveraged buyout is essentially kind of like buying a house to rent out to other people. You are better off paying less in cash up-front and using the property's income to pay off interest and debt principal. By using debt, you reduce the up-front cash payment for the company, which boosts your returns. Using the company's cash flows to repay debt p...

LBO MODEL GUIDE EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS VERIFIED GRADED A++ Does reducing the amount of cash you pay upfront increase or decrease your returns? Why? Increase; money today is worth more than money tomorrow Basic explanation of what a PE firm does It buys a company using some combination of debt and equity and then sell it in 3-5 years for a return. The firm uses the company's cash flows to pay off interest and debt principal The 3 key reasons that an LBO works...

LBO MODELING EXAM QUESTIONS AND ANSWERS VERIFIED GRADED A++ LATEST UPDATE Walk me through the mechanics of building an LBO model. 1. Entry valuation 2. Sources & uses table 3. Free cash flow build 4. Exit valuation & returns 5. Sensitivity analysis What is the purpose of the "sources & uses" section of an LBO? Outlines the amount of capital required to complete the transaction and how the proposed deal will be funded. From the private equity firms perspective, the key componen...

LBO MODELING EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS VERIFIED GRADED A++ Sources for LBO (Total of 5, Answer up to 3) 1.) Cash (or potentially excludes minimum cash) 2.) Proceeds from option exercised 3.) Tranches of capital structure (secured, unsecured, convertible preferred, hybrid) 4.) Sponsor Equity 5.) Revolver, but is normally not part of sources. It typically provides liquidity if there are working capital needs or needs for cash (read the language carefully to see if ...

LBO MODEL EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS VERIFIED GRADED A++ RATED What is an LBO in simple terms/an analogy? (use analogy in terms of a house) It's like buying a house for 500k, operating it for a few years, and selling it at a higher value What is the main idea of an LBO in real life? Private equity firms buy a company using a combination of debt and equity, and then they sell it 3-5 years into the future to realize a return. How do PE firms pay off the interest a...

LBO MODEL EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS VERIFIED BY EXPERTS basic LBO model 1. make assumptions about purchase price, debt/equity ratio, interest rate on debt and other variables 2. create source =s and uses section to show how you finance transaction 3. adjust balance sheet for new debt and equity figures and add in goodwill/intangibles on assets side 4. project income statement, balance sheet, cash flow statement and determine how much debt is paid off each year 5....

LBO MODEL - ADVANCED EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS VERIFIED LATEST UPDATE Tell me about all the different kinds of debt you could use in an LBO and the differences between everything. See figure on p155 How would an asset write-up or write-down affect an LBO model? / Walk me through how you adjust the Balance Sheet in an LBO model. All of this is very similar to what you would see in a merger model - you calculate Goodwill, Other Intangibles, and the rest of the write-...

LBO MODELING EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS VERIFIED GUARANTEED PASS net working capital = receivables + inventory - payables receivables days = receivables/sales x 365 inventory days = inventory/cogs x 365 payables days = payables/cogs x 365 capex is estimated as a % of sales, unless there is a more reasonable method depreciation is estimated from a capex/depreciation multiple sources of funds cash, revolver, debt (including revolver), equity uses of funds ...

LBO MODELING EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS VERIFIED RATED A++ Levered FCF Net Income +/- Non-Cash Items +/- Changes in Working Capital - CapEx Calc: EBITDA - (D&A) = EBIT - (Interest) = EBT - (Taxes) = Net Income + (D&A) - (CapEx) - (Changes in NWC) = LFCF bullet maturity when the entire loan matures at a specific date in the future; principal is due at end of lifespan straight line amortization principal must be repaid in equal installments until the loa...

LBO MODEL EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS VERIFIED LATEST UPDATE Assumptions Purchase price, % debt, debt terms, sources & uses Types of Covenants Maintenance and incurrance Ex Maintenance covenants Debt/ebitda, ebitda/interest expense Leverage ratio Debt/EBITDA Interest coverage ratio EBITDA / Interest Expense Do you pay eqv or ev Ev if repay existing debt, eqv if assume existing debt FCF Cash from operations - capex and recurring items cash flow from investin...