Leveraged Buyout (LBO) Modeling
Exam
Wall Street Prep Full Q&A
Prepared for Financial Modeling Professionals
July 6, 2025
This document provides a comprehensive guide with 100 questions and
answers to master the Leveraged Buyout (LBO) modeling exam, aligned with
Wall Street Prep’s methodologies.
,Contents
1 Introduction to LBO Modeling . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.1 Purpose of LBO Modeling . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 Importance in Exams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2 Key Concepts and Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Core LBO Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Key Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3 Step-by-Step LBO Modeling Process . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Step 1: Entry Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Step 2: Financing Structure . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Step 3: Financial Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Step 4: Debt Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Step 5: Exit Valuation and Returns . . . . . . . . . . . . . . . . . . . . . 5
4 100 Exam Questions and Answers . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Q1: What is a Leveraged Buyout (LBO)? . . . . . . . . . . . . . . . . . . 5
4.2 Q2: How do you approximate IRR in an LBO? . . . . . . . . . . . . . . 6
4.3 Q3: What are the three main ways to exit an LBO? . . . . . . . . . . . 6
4.4 Q4: What is the formula for exit proceeds? . . . . . . . . . . . . . . . . 6
4.5 Q5: Why use leverage in an LBO? . . . . . . . . . . . . . . . . . . . . . . 6
4.6 Q6: Walk me through a basic LBO model. . . . . . . . . . . . . . . . . . 6
4.7 Q7: What makes a good LBO candidate? . . . . . . . . . . . . . . . . . 6
4.8 Q8: What is a cash-free, debt-free (CFDF) transaction? . . . . . . . . . 7
4.9 Q9: How do you calculate goodwill in an LBO? . . . . . . . . . . . . . 7
4.10 Q10: What are key credit ratios in an LBO? . . . . . . . . . . . . . . . 7
4.11 Q11: What is the impact of PIK interest on an LBO? . . . . . . . . . . 7
4.12 Q12: How do you handle circular references in LBO models? . . . . 7
4.13 Q13: What is a cash sweep in an LBO? . . . . . . . . . . . . . . . . . . . 7
4.14 Q14: What is the purpose of a revolver in an LBO? . . . . . . . . . . . 7
4.15 Q15: How do you calculate MOIC? . . . . . . . . . . . . . . . . . . . . . 7
4.16 Q16: What is the typical holding period for an LBO? . . . . . . . . . . 8
4.17 Q17: What is a typical leverage ratio in an LBO? . . . . . . . . . . . . 8
4.18 Q18: How do you calculate enterprise value in an LBO? . . . . . . . . 8
4.19 Q19: What is the role of EBITDA in LBO modeling? . . . . . . . . . . . 8
4.20 Q20: What is a typical entry multiple for an LBO? . . . . . . . . . . . 8
4.21 Q21: What is a typical exit multiple assumption? . . . . . . . . . . . . 8
4.22 Q22: How does revenue growth impact LBO returns? . . . . . . . . . 8
4.23 Q23: What is the impact of higher leverage on IRR? . . . . . . . . . . 8
4.24 Q24: What is a dividend recapitalization? . . . . . . . . . . . . . . . . 8
4.25 Q25: What is rollover equity? . . . . . . . . . . . . . . . . . . . . . . . . 8
4.26 Q26: What is an Original Issue Discount (OID)? . . . . . . . . . . . . . 9
4.27 Q27: How do you model transaction fees in an LBO? . . . . . . . . . . 9
4.28 Q28: What is the impact of higher interest rates on an LBO? . . . . . 9
4.29 Q29: How do you calculate FCF in an LBO? . . . . . . . . . . . . . . . . 9
4.30 Q30: What is the role of the debt schedule in an LBO model? . . . . 9
4.31 Q31: What is a bullet payment? . . . . . . . . . . . . . . . . . . . . . . . 9
4.32 Q32: How do you model a cash-free, debt-free transaction? . . . . . 9
1
, LBO Modeling Exam – Wall Street Prep
4.33 Q33: What is the typical tax rate in LBO models? . . . . . . . . . . . . 9
4.34 Q34: How do you calculate interest expense for floating-rate debt? . 9
4.35 Q35: What is a typical LIBOR spread for senior debt? . . . . . . . . . 9
4.36 Q36: What is the purpose of sensitivity analysis in LBO modeling? . 10
4.37 Q37: What is a typical EBITDA margin assumption? . . . . . . . . . . 10
4.38 Q38: How do you model CapEx in an LBO? . . . . . . . . . . . . . . . . 10
4.39 Q39: What is the impact of a higher exit multiple on returns? . . . . 10
4.40 Q40: What is a covenant in an LBO? . . . . . . . . . . . . . . . . . . . . 10
4.41 Q41: How do you calculate net debt? . . . . . . . . . . . . . . . . . . . 10
4.42 Q42: What is the role of goodwill in an LBO? . . . . . . . . . . . . . . 10
4.43 Q43: How do you model working capital changes? . . . . . . . . . . . 10
4.44 Q44: What is a typical D&A assumption? . . . . . . . . . . . . . . . . . 10
4.45 Q45: What is the impact of a longer holding period on IRR? . . . . . 10
4.46 Q46: How do you calculate the purchase price in an LBO? . . . . . . 11
4.47 Q47: What is a typical equity contribution in an LBO? . . . . . . . . . 11
4.48 Q48: How do you model a revolver draw? . . . . . . . . . . . . . . . . 11
4.49 Q49: What is the impact of a higher tax rate on an LBO? . . . . . . . 11
4.50 Q50: What is a secondary buyout? . . . . . . . . . . . . . . . . . . . . . 11
4.51 Q51: How do you calculate exit equity value? . . . . . . . . . . . . . . 11
4.52 Q52: What is the role of a sponsor in an LBO? . . . . . . . . . . . . . . 11
4.53 Q53: How do you model financing fees? . . . . . . . . . . . . . . . . . 11
4.54 Q54: What is a typical interest coverage ratio target? . . . . . . . . . 11
4.55 Q55: How do you calculate the leverage ratio? . . . . . . . . . . . . . 11
4.56 Q57: How do you model a mandatory debt repayment? . . . . . . . . 12
5 Practical Examples and Scenarios . . . . . . . . . . . . . . . . . . . . . . . 14
5.1 Example 1: Standard LBO Model (JoeCo) . . . . . . . . . . . . . . . . . 14
6 Sensitivity Analysis and Key Metrics . . . . . . . . . . . . . . . . . . . . . 15
6.1 Sensitivity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Key Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7 Common Mistakes and Tips for Success . . . . . . . . . . . . . . . . . . . 15
7.1 Common Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.2 Tips for Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8 Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2
Exam
Wall Street Prep Full Q&A
Prepared for Financial Modeling Professionals
July 6, 2025
This document provides a comprehensive guide with 100 questions and
answers to master the Leveraged Buyout (LBO) modeling exam, aligned with
Wall Street Prep’s methodologies.
,Contents
1 Introduction to LBO Modeling . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.1 Purpose of LBO Modeling . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 Importance in Exams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2 Key Concepts and Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Core LBO Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Key Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3 Step-by-Step LBO Modeling Process . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Step 1: Entry Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Step 2: Financing Structure . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Step 3: Financial Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Step 4: Debt Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Step 5: Exit Valuation and Returns . . . . . . . . . . . . . . . . . . . . . 5
4 100 Exam Questions and Answers . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Q1: What is a Leveraged Buyout (LBO)? . . . . . . . . . . . . . . . . . . 5
4.2 Q2: How do you approximate IRR in an LBO? . . . . . . . . . . . . . . 6
4.3 Q3: What are the three main ways to exit an LBO? . . . . . . . . . . . 6
4.4 Q4: What is the formula for exit proceeds? . . . . . . . . . . . . . . . . 6
4.5 Q5: Why use leverage in an LBO? . . . . . . . . . . . . . . . . . . . . . . 6
4.6 Q6: Walk me through a basic LBO model. . . . . . . . . . . . . . . . . . 6
4.7 Q7: What makes a good LBO candidate? . . . . . . . . . . . . . . . . . 6
4.8 Q8: What is a cash-free, debt-free (CFDF) transaction? . . . . . . . . . 7
4.9 Q9: How do you calculate goodwill in an LBO? . . . . . . . . . . . . . 7
4.10 Q10: What are key credit ratios in an LBO? . . . . . . . . . . . . . . . 7
4.11 Q11: What is the impact of PIK interest on an LBO? . . . . . . . . . . 7
4.12 Q12: How do you handle circular references in LBO models? . . . . 7
4.13 Q13: What is a cash sweep in an LBO? . . . . . . . . . . . . . . . . . . . 7
4.14 Q14: What is the purpose of a revolver in an LBO? . . . . . . . . . . . 7
4.15 Q15: How do you calculate MOIC? . . . . . . . . . . . . . . . . . . . . . 7
4.16 Q16: What is the typical holding period for an LBO? . . . . . . . . . . 8
4.17 Q17: What is a typical leverage ratio in an LBO? . . . . . . . . . . . . 8
4.18 Q18: How do you calculate enterprise value in an LBO? . . . . . . . . 8
4.19 Q19: What is the role of EBITDA in LBO modeling? . . . . . . . . . . . 8
4.20 Q20: What is a typical entry multiple for an LBO? . . . . . . . . . . . 8
4.21 Q21: What is a typical exit multiple assumption? . . . . . . . . . . . . 8
4.22 Q22: How does revenue growth impact LBO returns? . . . . . . . . . 8
4.23 Q23: What is the impact of higher leverage on IRR? . . . . . . . . . . 8
4.24 Q24: What is a dividend recapitalization? . . . . . . . . . . . . . . . . 8
4.25 Q25: What is rollover equity? . . . . . . . . . . . . . . . . . . . . . . . . 8
4.26 Q26: What is an Original Issue Discount (OID)? . . . . . . . . . . . . . 9
4.27 Q27: How do you model transaction fees in an LBO? . . . . . . . . . . 9
4.28 Q28: What is the impact of higher interest rates on an LBO? . . . . . 9
4.29 Q29: How do you calculate FCF in an LBO? . . . . . . . . . . . . . . . . 9
4.30 Q30: What is the role of the debt schedule in an LBO model? . . . . 9
4.31 Q31: What is a bullet payment? . . . . . . . . . . . . . . . . . . . . . . . 9
4.32 Q32: How do you model a cash-free, debt-free transaction? . . . . . 9
1
, LBO Modeling Exam – Wall Street Prep
4.33 Q33: What is the typical tax rate in LBO models? . . . . . . . . . . . . 9
4.34 Q34: How do you calculate interest expense for floating-rate debt? . 9
4.35 Q35: What is a typical LIBOR spread for senior debt? . . . . . . . . . 9
4.36 Q36: What is the purpose of sensitivity analysis in LBO modeling? . 10
4.37 Q37: What is a typical EBITDA margin assumption? . . . . . . . . . . 10
4.38 Q38: How do you model CapEx in an LBO? . . . . . . . . . . . . . . . . 10
4.39 Q39: What is the impact of a higher exit multiple on returns? . . . . 10
4.40 Q40: What is a covenant in an LBO? . . . . . . . . . . . . . . . . . . . . 10
4.41 Q41: How do you calculate net debt? . . . . . . . . . . . . . . . . . . . 10
4.42 Q42: What is the role of goodwill in an LBO? . . . . . . . . . . . . . . 10
4.43 Q43: How do you model working capital changes? . . . . . . . . . . . 10
4.44 Q44: What is a typical D&A assumption? . . . . . . . . . . . . . . . . . 10
4.45 Q45: What is the impact of a longer holding period on IRR? . . . . . 10
4.46 Q46: How do you calculate the purchase price in an LBO? . . . . . . 11
4.47 Q47: What is a typical equity contribution in an LBO? . . . . . . . . . 11
4.48 Q48: How do you model a revolver draw? . . . . . . . . . . . . . . . . 11
4.49 Q49: What is the impact of a higher tax rate on an LBO? . . . . . . . 11
4.50 Q50: What is a secondary buyout? . . . . . . . . . . . . . . . . . . . . . 11
4.51 Q51: How do you calculate exit equity value? . . . . . . . . . . . . . . 11
4.52 Q52: What is the role of a sponsor in an LBO? . . . . . . . . . . . . . . 11
4.53 Q53: How do you model financing fees? . . . . . . . . . . . . . . . . . 11
4.54 Q54: What is a typical interest coverage ratio target? . . . . . . . . . 11
4.55 Q55: How do you calculate the leverage ratio? . . . . . . . . . . . . . 11
4.56 Q57: How do you model a mandatory debt repayment? . . . . . . . . 12
5 Practical Examples and Scenarios . . . . . . . . . . . . . . . . . . . . . . . 14
5.1 Example 1: Standard LBO Model (JoeCo) . . . . . . . . . . . . . . . . . 14
6 Sensitivity Analysis and Key Metrics . . . . . . . . . . . . . . . . . . . . . 15
6.1 Sensitivity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Key Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7 Common Mistakes and Tips for Success . . . . . . . . . . . . . . . . . . . 15
7.1 Common Mistakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.2 Tips for Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8 Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2
