LBO MODELS EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS VERIFIED GRADED A++ 2024/2025
5 views 0 purchase
Course
LBO
Institution
LBO
LBO MODELS EXAM QUESTIONS AND ANSWERS WITH COMPLETE SOLUTIONS VERIFIED GRADED A++ 2024/2025
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, f...
lbo models exam questions and answers with complet
Written for
LBO
All documents for this subject (88)
Seller
Follow
AcademicSuperScores
Reviews received
Content preview
LBO MODELS EXAM QUESTIONS AND ANSWERS WITH
COMPLETE SOLUTIONS VERIFIED GRADED A++
2024/2025
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?
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 multiples
using sensitivity tables.
Sometimes you set purchase and exit multiples based on a specific IRR target that
you're trying to achieve - but this is just for valuation purposes if you're using an LBO
model to value the company.
What is an "ideal" candidate for an LBO?
. stable and predictable cash flows (most important)
. low-risk business
. not much need for ongoing investments such as Capital Expenditures
. an opportunity for expense reductions to boost their margins
, A strong management team also helps, as does a base of assets to use as collateral for
debt.
How do you use an LBO model to value a company, and why do we sometimes
say that it sets the "floor valuation" for the company?
You use it to value a company by setting a targeted IRR (for example, 25%) and then
back-solving in Excel to determine what purchase price the PE firm could pay to
achieve that IRR.
This is sometimes called a "floor valuation" because PE firms almost always pay less
for a company than strategic acquirers would.
Give an analogy of a real life LBO
The most common example is taking out a mortgage when you buy a house. Here's
how the analogy works:
• Down Payment: Investor Equity in an LBO
• Mortgage: Debt in an LBO
• Mortgage Interest Payments: Debt Interest in an LBO
• Mortgage Repayments: Debt Principal Repayments in an LBO
• Selling the House: Selling the Company / Taking It Public in an LBO
Why are Goodwill & Other Intangibles created in an LBO?
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 AcademicSuperScores. 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.
