LBO MODELLING EXAM FROM WALL STREET PREP 2026 100% VERIFIED ANSWERS

LBO MODELLING EXAM FROM WALL STREET PREP 2026 100% VERIFIED ANSWERS 
1.How do you use an LBO model to value a company, and why do we
sometimessay that it setsthe "floor valuation" for the company?
Answer
You use it to value a company by setting a targeted IRR (e.g., 25%) and
then back-solving to determine what purchase price the PE firm could
pay to achieve that IRR.
-Thisissometimes called a "floor valuation" because PE firms almost
always pay less for a company than strategic acquirers would.
2.Give an example of a "real-life" LBO.
Answer
The most common analogy is taking out a mortgage when you buy a
house.
• Down Payment: Investor Equity
• Mortgage: Debt
• Mortgage Interest Payments: Debt Interest
• Mortgage Repayments: Debt Principal Repayments
• Selling the House: Selling the Company / Taking It Public
3.Can you explain how the Balance Sheet is adjusted in an LBO model?
Answer
First, the Liabilities & Equities side is adjusted - the new debt is added
on, and the Shareholders' Equity is "wiped out" and replaced by
however much equity the private equity firm is contributing.

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