Exam (elaborations)
Wall Street Prep Premium Exam with Answers 2024/2025
- Course
- Wall Street Prep
Wall Street Prep Premium Exam with Answers 2024/2025
[Show more]
Content preview
Wall Street Julka X - (LBO Basic) ExamWith Answers 2024/2025
Walk me through a basic LBO Model.
"In an LBO Model, Step 1 is making assumptions about the Purchase Price, Debt/Equity ratio, Interest
Rate on Debt and other variables; you might also assume something about the company's operations,
such as Revenue Growth or Margins, depending on how much information you have.
Step 2 is to create a Sources & Uses section, which shows how you finance the transaction and what you
use the capital for; this also tells you how much Investor Equity is required.
Step 3 is to adjust the company's Balance Sheet for the new Debt and Equity figures, and also add in
Goodwill & Other Intangibles on the Assets side to make everything balance. In
Step 4, you project out the company's Income Statement, Balance Sheet and Cash Flow Statement, and
determine how much debt is paid off each year, based on the available Cash Flow and the required
Interest Payments.
Finally, in Step 5, you make assumptions about the exit after several years, usually assuming an EBITDA
Exit Multiple, and calculate the return based on how much equity is returned to the firm."
Why would you use leverage when buying a company?
To increase your returns.
Remember, any debt you use in an LBO is not "your money" - so if you're paying $5 billion for a
company, it's easier to earn a high return on $2 billion of your own money and $3 billion borrowed from
elsewhere vs. $3 billion of your own money and $2 billion of borrowed money.
A secondary benefit is that the firm also has more capital available to purchase other companies
because they've used leverage
What variables impact an LBO model the most?
Purchase and exit multiples have the biggest impact on the returns of a model. After that, the amount of
leverage (debt) used also has a significant impact, followed by operational characteristics such as
revenue growth and EBITDA margins.
How do you pick purchase multiples and exit multiples in an LBO model?
The same way you do it anywhere else: you look at what comparable companies are trading at, and
what multiples similar LBO transactions have had. As always, you also show a range of purchase and exit
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Schoolflix. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $14.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
72349 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now