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Exam (elaborations)

LBOs Practice Exam Questions and Correct Answers
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Unfunded Revolver Revolver still available (ie hasnt been taken out) OID Discount on debt so OID= (100-price)/100*FV it means that to buy $100 of Face Value of the Term Loan, lenders would only have to give us $99 in cash. This $1 difference is amortized over time or when the loan is repaid BOP ...

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  • August 14, 2024
  • 35
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

Subjects

  • lbos practice exam questions and correct answers
  • unfunded revolver revolver still available ie ha
  • oid discount on debt so oid 100 price100fv i

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  • LBO Modeling
  • LBO Modeling

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LBOs Practice Exam Questions and
Correct Answers
Unfunded Revolver ✅Revolver still available (ie hasnt been taken out)

OID ✅Discount on debt so OID= (100-price)/100*FV

it means that to buy $100 of Face Value of the Term Loan, lenders would only have to
give us $99 in cash. This $1 difference is amortized over time or when the loan is repaid

BOP Book = BOP Face value - BOP OID. EOP Book = EOP
Face value - EOP OID.o Year 1 BOP OID is calculated from the capital structure as
Face Value * (100 - Price) / 100.

OID is recognized in two situations: amortization and recognition. OID amortization=
BOP OID Balance/yrs remaining on loan

OID recognized in repayment=

LIBOR ✅Cash interest rate. bps= %*10,000

Employee Stock Options ✅If old E> strike price then own 5/105 of company * old E

Strike price= old E

Refinancing ✅Recalculate debt by EBITDA (t-1)*Multiple

Div Repayment ✅Debt raised - debt repaid - call premium--> EOP*(Prem-`100/100)

Net FD Shares ✅Common Stock Outstanding + (shared issued-shares repurchased)

Shares repurchased ✅= cash proceeds/stock price bc repurchase common stock from
options proceeds

Debt on the BS ✅FV-OID

Paid in Capital ✅Funds raised in selling shares (includes sponsor equity)

Additional PIC= $$ paid in excess of par

Retained Earnings ✅Adjusted to zero then down by Advisory Fees * (1-T)

,Capitalized financing fees ✅ARE AN ASSET that gets amortized

Depreciation ✅=Maintenance + Plant

Plant= PP&E (BOP) + Capex = Gross PP&E (EOP)

Year 2 Plant Gross PP&E (BOP) = Year 1 Plant Gross PP&E (EOP).

Accounts Receivable ✅Days Receivable / 365 * Revenue.

Accounts Payable ✅Days Payable / 365 * COGS.

Inventory ✅Days Inventory / 365 * COGS.

Other Current Assets and Liabilities ✅% sales * Revenue.

NWC ✅A/R+Inv+OCA-A/P-OCL

LCF ✅EBITDA - Capex - Cash Interest - Taxes - increase in NWC

✅BOP Undrawn Capacity = Total Capacity ($100M) - BOP Balance; EOP Undrawn
Capacity = Total Capacity ($100M) - EOP Balance.

The logic for the (Payment) / Drawdown line is a bit more complex. If CF is negative and
we have capacity in the Revolver, we want to draw it down as necessary. If we have a
balance on the Revolver and positive CF, we want to repay the Revolver as much as we
can

Gross PP&E Y1 ✅=Gross PP&E Y0 + Capex Y1 (bc ur spending=value adding to
company)

Accumulated Depreciation Year 1 ✅Accumulated Depreciation
Year 0 + Plant Depreciation Year 1 + Maintenance Depreciation
Year 1.

Net PP&E ✅Gross PP&E - Accumulated Depreciation.

Retained Earnings Year 1 ✅Retained Earnings Year 0 + Net
Income Year 1 (there are no dividends here).

Paid In Capital Year 1 ✅Paid In Capital Year 0 + Shares Issued *
Par Value of Shares.

Par Value= Sponsorship E @ beg/SO

,Shares Issued will come both from the IPO and from management's options.
o Par Value of Shares will be equal to Sponsor Equity Value /
Shares Outstanding at the time of the initial deal (here
$4.45).

Capital In Excess of Par Value Year 1 ✅Capital In Excess of Par
Value Year 0 + CF from Stock Issuance Year 1 - (Paid In Capital Year 1 - Paid In
Capital Year 0).

Capital in Excess of PAr Value Y0= set to 0 if assume all shares were issues @ par.
This + PIC has to = SPonsor Equity

Call Premium ✅$$ given to investors when debt is called earlier

Leverage/Coverage covenan ✅Min leverage ratio or min interest coverage ratio

Cushion= EBITDA/Net Debt/(covenant Net Debt/Ebitda)-1

MOIC ✅Equity gained/equity commited

IF mgmt put in part of Equity, have to take that % out of equity gained @ end

IRR ✅MOIC^(1/5)-1

EBT ✅`

Call Premium/Div Recap after yr 3 ✅This means REFINANCE beg of yr 4 using Yr 3
EBITDA*Debt Multiples

Div Recap CFs in Returns Calculation:
Debt Raised
-Debt Repaid
-Call Premium on Sr notes

*How is this a Div recap

Cash from mgmt options ✅Mgmt option % * (Sponsor Equity y0 - Div payment y3)

WHY!??!

NOL ✅If have NOL, dont pay tax for the year and can get a REFUND for previous 2
years tax

NOL affects TAXES= (EBT-NOL Recognized)*t

, instead of just EBT*t. Doesnt affect IS in any other way

Employee Stock Option ✅Are CALLS= right to purchase

Given # shares & strike price

ITM shares are exercised

Fully Diluted Shares:
Cash Proceeds from shared bought/stock price= # shares repurchased

# shares repurchased - shares issued = Net FD shares

LEARN HOW AN OID FLOWS THROUGH AN LBO ✅

Non Cash interest ✅OID amortization + OID recognition in repayment + PIK interest

Call Fee ✅Paydown*((Call Premium-100)/100)

Management Rollover ✅Management rolls over equity & contributes to new
Rollover % * Existing equity value`

Cash Sweep? ✅

Each answer should be <1 min ✅

Do you plan on going to business school? Why or why not? ✅You'd like to attend only
if it teaches you skills that help you advance in your career.

Who else are you interviewing with/Where are you in the process with other firms?
✅can be a feeler as to how desirable you are. If many notable firms are interviewing
you, they feel reassured that you are a qualified candidate. Also, having multiple offers
gives them a sense of urgency that you're so good you'll get scooped up by someone
else if they don't give you an offer soon.

What in particular is attractive about this firm? ✅

Why did you choose the firm you are at now/Why did you chose your
group/sector/product/Why did you choose your college? ✅

What qualities/skills do you feel you have that are transferable to this industry? ✅

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