LBO MODELLING EXAM FROM WALL STREET PREP 2024 With Complete Solution.

LBO MODELLING EXAM FROM WALL STREET
PREP 2024


How do you use an LBO model to value a company, and why do we
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sometimes say that it sets the "floor valuation" for the company? - ANS- You
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use it to value a company by setting a targeted IRR (e.g., 25%) and then
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back-solving to determine what purchase price the PE firm could pay to
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achieve that IRR.
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This is sometimes called a "floor valuation" because PE firms almost always
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pay less for a company than strategic acquirers would.
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Give an example of a "real-life" LBO. - ANS-The most common analogy is
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taking out a mortgage when you buy a house.
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• Down Payment: Investor Equity jl jl jl




• Mortgage: Debt jl




• Mortgage Interest Payments: Debt Interest jl jl jl jl




• Mortgage Repayments: Debt Principal Repayments jl jl jl jl




• Selling the House: Selling the Company / Taking It Public
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Can you explain how the Balance Sheet is adjusted in an LBO model? -
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ANS-First, the Liabilities & Equities side is adjusted - the new debt is
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added on, and the Shareholders' Equity is "wiped out" and replaced by
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however much equity the private equity firm is contributing.
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, What is an LBO? - ANS-A leveraged buyout is the acquisition of a company
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using debt instruments as the majority of the purchase price.
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