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LBO Modeling Exam From Wall Street (Version 1& 2) Newest 2025 Exam Complete Questions And Correct Detailed Answers (Verified Answers) |Already Graded A+
Version 1 The PE firm may have to use funds to refinance debt, meaning WHAT in the case of an LBO? - ANSWER-May have to pay off the debt of the company it is buying?
Most of the time, the PE firm will refinance the acquisition's debt and pay it off, but sometimes it will ___ the debt, meaning what? - ANSWER-assume; the remaining debt remains on the company's BS after the acquisition
If PE assumes the debt, it has no impact on the total funds it must raise; if it pays off the debt, it ____ the funds required - ANSWER-increases
In an LBO, if you are assuming debt, will the purchase price be closer to equity value or enterprise value? - ANSWER-Equity value 1 / 4
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In an LBO, if you repay existing debt, will the purchase price be closer to equity value or enterprise value? - ANSWER- Enterprise value
In the context of an LBO, Free Cash Flow means ____ - ANSWER-Cash flow from operations minus CapEx
How much cash do we have to repay debt each year after we have already paid operating expenses and interest expense
Can all types of debt be repaid early ? - ANSWER-No - bank debt can, but high yield debt cannot
If the company does not have enough cash flow for its minimum mandatory debt repayments, it would need to borrow more via a _____ to make the mandatory repayments - ANSWER-Revolver
In order to determine how much the company can be sold for, you assume an ____ , which is usually close to or below the purchase EBITDA multiple - ANSWER-exit EBITDA multiple
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If PE firm doubles its money in 5 years, that is a ____ IRR -
ANSWER-15%
If a PE firm triples its money in 5 years, that is a ___ IRR -
ANSWER-25%
If a PE firm doubles its money in 3 years, that is a ___ IRR -
ANSWER-26%
If a PE firm triples its money in 3 years, that is a ____ IRR -
ANSWER-44%
The variables that have the most effect on IRR in an LBO are ...
- ANSWER-purchase price
% debt and % equity used exit price
Changes that increase IRR - ANSWER-lower purchase price, less equity, lower interest rates, higher EBITDA margins, higher revenue growth, lower CapEx
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Changes that decrease IRR - ANSWER-higher purchase price, higher equity, lower revenue growth, lower EBITDA margins, higher CapEx, higher interest rates
What does a divided recap mean? - ANSWER-"This PE firm forces the company to take on additional debt and issues a big cash dividend to itself with the proceeds from the debt"
Why do dividend recaps boost returns? - ANSWER-It allows the company to get some of its capital back earlier rather than waiting on an official exit
Biggest obstacles to doing an LBO for a private company - ANSWER-1. company may not want to sell
- info is more limited
PIK (payment-in-kind) is more common with riskier types of debt, such as... - ANSWER-mezzanine
If you acquire less than 50% of a company it is no longer a true LBO. T or F? Why? - ANSWER-true - you cannot force a company to take on debt if you do not control it
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