What is an lbo Study guides, Class notes & Summaries

What is an LBO? - ANSWER A leveraged buyout is the acquisition of a company using debt instruments as the majority of the purchase price. Pros: 1. Valuation is realistic as it does not require synergies to achieve. Cons: 1. Ignoring synergies could result in an underestimated valuation. 2. Very sensitive to operating (growth rate, margins, etc) and financial (multiples) assumptions. Why would you use leverage when buying a company? - ANSWER To boost the investor's return. The les...

LBO Model (Breaking Into Wall Street) EXAM 2024 UPDATE "Real-Life" LBO - ANSWER-Common example; mortgage on a house. a)Down payment -- investor equity b)Mortgage -- debt c)Mortgage interest payments -- Debt interest d) Mortgage repayments -- debt principal repayments e) Selling the house -- selling the company/taking it public What is an "ideal" candidate for an LBO? - ANSWER-1) Stable and predictable cash flows 2) low-risk businesses 3) low capex 4) opportunity for expense reductions to ...

LBO/PE Interview Prep Exam Questions & Answers Hurdle rate - ANSWER ️️ minimum acceptable rate of return Run me through the changes between the existing balance sheet and the pro forma balance sheet in an LBO model. (8 steps) - ANSWER ️️ 1) Deduct cash used in transaction 2) PP&E Step-up 3)New Identified Tangibles 4) New Goodwill 5) Capitalized financing fees 6) New debt+repayment of old debt 7) Deferred tax liability 8) New common equity Walk me through an LBO analysis - ANS...

Does reducing the amount of cash you pay upfront increase or decrease your returns? Why? - ANSWER Increase; money today is worth more than money tomorrow Basic explanation of what a PE firm does - ANSWER It buys a company using some combination of debt and equity and then sell it in 3-5 years for a return. The firm uses the company's cash flows to pay off interest and debt principal The 3 key reasons that an LBO works - ANSWER 1. By using debt, you reduce up-front cash payment for the com...

LBO MODEL (BREAKING INTO WALL STREET ) EXAM QUESTIONS AND CORRECT ANSWERS 2024/2025 GRADED A+. 2 / 4 1. Walk me through a basic LBO model?: 1) Assumptions of purchase price, debt/equity ratio, interest rate on debt, and other variables and you might assume something about company's revenue growth or margins. 2)Create sources & uses section 3) Adjust company's balance sheet for the new debt, equity, Goodwill, andother intangibles. 4) Project company's income statement, balance sheet, a...

What is an LBO? - ANSWER A leveraged buyout is the acquisition of a company using debt instruments as the majority of the purchase price. Pros: 1. Valuation is realistic as it does not require synergies to achieve. Cons: 1. Ignoring synergies could result in an underestimated valuation. 2. Very sensitive to operating (growth rate, margins, etc) and financial (multiples) assumptions. Why would you use leverage when buying a company? - ANSWER To boost the investor's return. The les...

2024 Trading Comps Modeling Exam Wall Street Prep / Wall Street Prep Premium Exam Transaction Comps Modeling Wall Street Prep Exam GRADED A+ the terminal value of a business that grows indefinitely is calculated as follows - ANSWER-cash flow from period "t+1" divided by (discount rate-growth rate) the two-stage DCF model is: - ANSWER-where stage 1 is an explicit projection of free cash flows (generally for 5-10 years), and stage 2 is a lump-sum estimate of the cash flows beyond the ...

2024 Trading Comps Modeling Exam Wall Street Prep / Wall Street Prep Premium Exam Transaction Comps Modeling Wall Street Prep Exam GRADED A+ the terminal value of a business that grows indefinitely is calculated as follows - ANSWER-cash flow from period "t+1" divided by (discount rate-growth rate) the two-stage DCF model is: - ANSWER-where stage 1 is an explicit projection of free cash flows (generally for 5-10 years), and stage 2 is a lump-sum estimate of the cash flows beyond the ...

LBO Modeling / LBO Modelling Exam from Wall Street Prep 2024 PASS A+ What do LBO FCF's tell us? - ANSWER-Tells you how much cash is available to repay *debt principal* each year after already paying for normal expenses and debt interest Can a PE firm earn a solid return if it buys a company for $1 billion and sells it for $1 billion 5 years? - ANSWER-Yes, if it uses a certain amount of debt to purchase the company- if they raise $500m, and use $500 cash, the company's FCF's are able ...

What is a leveraged buyout (LBO)? - ANSWER A leveraged buyout is the acquisition of a public or private company with a significant amount of borrowed funds. A private equity firm (or group of private equity firms) acquires a company using debt instruments as the majority of the purchase price. After the purchase of the company, the debt/equity ratio is generally greater than 1.0x (debt generally constitutes 50-80% of the purchase price). During the ownership of the company, the company's cash f...