LBO MODEL EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS GRADED A++
7 views 0 purchase
Course
LBO
Institution
LBO
LBO MODEL EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS GRADED A++
What is an LBO
Acquisition where a significant part of the purchase price is funded with debt and the remaining portion is funded with equity by a financial sponsors
What are the different kinds of debt you could use in an...
lbo model exam questions and answers with complete
Written for
LBO
All documents for this subject (88)
Seller
Follow
NurseAdvocate
Reviews received
Content preview
LBO MODEL EXAM QUESTIONS AND ANSWERS
WITH COMPLETE SOLUTIONS GRADED A++
What is an LBO
Acquisition where a significant part of the purchase price is funded with debt and the
remaining portion is funded with equity by a financial sponsors
What are the different kinds of debt you could use in an LBO and the differences
between everything.
Floating interest rates consist of a revolver, term loan A and term loan b, with the
interest rate increasing respectivly across the 3. Tenor ranges from 3-5, 4-6, or 4-8
years. They are senior secured and the investors are suually conservative banks. Then
there is fixed rate debt that includes senior notes, subordinated notes, and mezzanine.
The interest rates are higher than floating, and increase respectively. Senior notes are
7-10 years, and are senior unsecured. subordinated notes are 8-10 years, and are
senior unsubordinated. Mezzanine is the highest interest rate and the lowest seniority, it
can also be PIK.
Seniority
refers tot he order of claims on a company's assets in a bankruptcy
What is the difference between a floating and fixed interest rates
A floating interest rate is tied to LIBOR, meaning that the interest rate of the loan is
whatever LIBOR is at current, plus the amount of basis points. A fixed interest rate,
would be fixed, it doesn't float with LIBOR.
, Describe the different types of amortization
Straight line means the company pays off the principal in equal installments each year,
while bullet means that the entire principal is due at the end of the loan's lifecycle.
Minimal just means a low percentage of principal each year usually in the 1-5% range.
What is call protection
Call protection indicates if the company is prohibited from "calling back" or paying off or
redeeming the security for a certain period
Why is call protection beneficial to investors
Because they are guaranteed a certain number of interest payments
How would an asset write-up or write-down affect an LBO model?
You calculate goodwill, other intangibles, and the rest of the write-ups in the same way,
and then the balance sheet adjustments (subtracting cash, adding in capitalized
financing fees, writing up assets, wiping out goodwill, adjusting the deferred tax
assets/liabilities, adding in new debt). You also assume that the exisiting shareholders'
equity is wiped out and replaced by the equity the private equity firm contributes to buy
the company. And you are not combining the companies' balance sheets
how do we calculated the IRR for the debt investors?
For debt investors, you need to calculate the interest and principal payments they
receive from the company each year. Then you simple use the IRR function in excel
and start with the negative amount of the original debt for Year 0, assume the interest
rate and principal payments each year are your cash flows and then assume that the
remaining debt balance in the final year is your exit value.
Who typically receives a higher IRR, equity or debt investors?
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 NurseAdvocate. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $9.99. You're not tied to anything after your purchase.