Page |1
LBO MODELING EXAM FROM WALL STREET (VERSION 1&
2) NEWEST 2025 EXAM 2025/2026 NEWEST ACTUAL EXAM
WITH COMPLETE QUESTIONS AND VERIFIED ANSWERS
|ALREADY GRADED A+|
How do you project the financial statements and determine how
much debt the company can pay off each year? - ANSWER-
Assume revenue growth rate, make key expenses a % of rev, and
then tie the BS and CFS items to rev and expenses on the IS -
and to historical trends
to project the cash flow available to repay debt each year, you
take the CFO and subtract CapEx
Just as in DCF, assume that other items in its CFI and CFF are
non-recurring and therefore do not impact future cash flows
This calculation only determines how much in debt principal the
company could potentially pay - interest expense has already
been factored in on the IS and its impact tis already reflected in
the CFO #
, Page |2
Is it really accurate to use Levered Free Cash Flow to determine
how much debt can be repaid? Can't you reduce CapEx spending
after a leveraged buyout? - ANSWER-First off, this metric of CFO
- CapEx is not exactly levered FCF (normally you also subtract
mandatory debt repayments)
Assuming that CapEx can be reduced post LBO is dangerous bc
CapEx drives revenue growth
What if the company has existing debt? How does that affect the
projections? - ANSWER-The PE firm would either assume the
debt or refinance the debt. Refinancing results in debt being a non
factor bc it goes away. Assuming the debt would require you to
factor in interest and principal repayments on that debt over future
years.
normally, you do this by assuming that existing debt principal is
paid off first after you've calculated CFO minus CapEx. Then, you
can use any remaining cash flow after that to pay off debt
principal for new debt raised in an LBO
, Page |3
What's the proper repayment order if there are multiple tranches
of debt? - ANSWER-Assume existing debt on the BS is paid off
first.
After that, depends on seniority of debt and whether or not the
debt can even be repaid early. for example, you cannot repay
debt principal early on high yield debt
If you have a revolver, and then multiple loan terms, normally you
will pay the revolver first, followed by the most senior term loan,
and then more junior term loans
in theory you should want to repay the most expensive form of
debt 1st - but this is not always allowed
Do you need to project all 3 statements in an LBO model? Are
there any shortcuts? - ANSWER-Yes, there are shortcuts and you
do not necessarily need to project all 3 statements.
, Page |4
for example, you do not need to create a full BS. You do need
some form of IS, something to track how the Debt balances
change and some type of cash flow statement to show much cash
is available to repay debt
but a full blown BS is not strictly required bc you can make an
assumption for the overall change in operating assets and
liabilities rather than projecting each one separately
What is meant by a "tax shield" in an LBO? - ANSWER-This
means that the interest a firm pays on debt is tax-deductible - so
they save money on taxes and therefore increase their cash flow
as a result of having debt from the LBO.
Note, however, that their cash flow is still lower than it would be
without the debt - saving on taxes helps, but the added interest
expenses still reduces Net Income over what it would be for a
debt-free company.
How do you calculate the internal rate of return (IRR) in an LBO
model and what does it mean? - ANSWER-Make the amount of
LBO MODELING EXAM FROM WALL STREET (VERSION 1&
2) NEWEST 2025 EXAM 2025/2026 NEWEST ACTUAL EXAM
WITH COMPLETE QUESTIONS AND VERIFIED ANSWERS
|ALREADY GRADED A+|
How do you project the financial statements and determine how
much debt the company can pay off each year? - ANSWER-
Assume revenue growth rate, make key expenses a % of rev, and
then tie the BS and CFS items to rev and expenses on the IS -
and to historical trends
to project the cash flow available to repay debt each year, you
take the CFO and subtract CapEx
Just as in DCF, assume that other items in its CFI and CFF are
non-recurring and therefore do not impact future cash flows
This calculation only determines how much in debt principal the
company could potentially pay - interest expense has already
been factored in on the IS and its impact tis already reflected in
the CFO #
, Page |2
Is it really accurate to use Levered Free Cash Flow to determine
how much debt can be repaid? Can't you reduce CapEx spending
after a leveraged buyout? - ANSWER-First off, this metric of CFO
- CapEx is not exactly levered FCF (normally you also subtract
mandatory debt repayments)
Assuming that CapEx can be reduced post LBO is dangerous bc
CapEx drives revenue growth
What if the company has existing debt? How does that affect the
projections? - ANSWER-The PE firm would either assume the
debt or refinance the debt. Refinancing results in debt being a non
factor bc it goes away. Assuming the debt would require you to
factor in interest and principal repayments on that debt over future
years.
normally, you do this by assuming that existing debt principal is
paid off first after you've calculated CFO minus CapEx. Then, you
can use any remaining cash flow after that to pay off debt
principal for new debt raised in an LBO
, Page |3
What's the proper repayment order if there are multiple tranches
of debt? - ANSWER-Assume existing debt on the BS is paid off
first.
After that, depends on seniority of debt and whether or not the
debt can even be repaid early. for example, you cannot repay
debt principal early on high yield debt
If you have a revolver, and then multiple loan terms, normally you
will pay the revolver first, followed by the most senior term loan,
and then more junior term loans
in theory you should want to repay the most expensive form of
debt 1st - but this is not always allowed
Do you need to project all 3 statements in an LBO model? Are
there any shortcuts? - ANSWER-Yes, there are shortcuts and you
do not necessarily need to project all 3 statements.
, Page |4
for example, you do not need to create a full BS. You do need
some form of IS, something to track how the Debt balances
change and some type of cash flow statement to show much cash
is available to repay debt
but a full blown BS is not strictly required bc you can make an
assumption for the overall change in operating assets and
liabilities rather than projecting each one separately
What is meant by a "tax shield" in an LBO? - ANSWER-This
means that the interest a firm pays on debt is tax-deductible - so
they save money on taxes and therefore increase their cash flow
as a result of having debt from the LBO.
Note, however, that their cash flow is still lower than it would be
without the debt - saving on taxes helps, but the added interest
expenses still reduces Net Income over what it would be for a
debt-free company.
How do you calculate the internal rate of return (IRR) in an LBO
model and what does it mean? - ANSWER-Make the amount of
