Paper LBO Practice Questions and Complete Solutions
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Course
LBO Modeling
Institution
LBO Modeling
What will you be given in a paper LBO? 1) Capital Structure (% debt vs. equity) for leverage 2) Duration of investment for IRR estimation 3) Projected EBITDA for FCF (may be given in the form of revenue, growth rate and margins) 4) Depreciation and amortization expense for tax calculation 5) Cost o...
Paper LBO Practice Questions and
Complete Solutions
What will you be given in a paper LBO? ✅1) Capital Structure (% debt vs. equity) for
leverage
2) Duration of investment for IRR estimation
3) Projected EBITDA for FCF (may be given in the form of revenue, growth rate and
margins)
4) Depreciation and amortization expense for tax calculation
5) Cost of debt for interest expense
6) Tax rate for taxes
7) Cash flow components: working capital, capex, etc.
8) Exit multiple for ending EV
How do you calculate to Free Cash Flow? ✅EBITDA - D&A - Taxes - Interest Expense
- Net Working Capital - Capex = FCF
How do you calculated ending equity value ("E")? ✅E = ending Enterprise Value +
debt - cash
What is the crux of the answer for the paper LBO? ✅Ending Equity / Beginning Equity
= Return
Purchase Price: 5.0x
Debt-to-Equity: 40/60
Cost of Debt: 10%
Next Year Revenue: $100 million
EBITDA Margin: 40%
Revenue Growth: $50 million every year
Margin Growth: Estimated to stay flat
Working Capital: Stays the same
Capex: 20% of Sales
D&A: $20 million every year
Tax Rate: 40%
Exit Time: 5 Years ✅Approximate EV Multiple: 3.4x
IRR: ~28%
See Pg. 97 of Vault Guide for Detailed Answer
Purchase Price: 5.0x
Debt-to-Equity: 60:40
Cost of Debt: 10%
Next Year Revenue: $100 million
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