Private Equity And LBO Analyst Interview Questions #6

  1. How can you forecast financial accounts and calculate the amount of debt the company can pay off each year?

  2. What if the business is already in debt? What effect does this have on the projections?

  3. When there are many debt tranches, what is the right repayment order?

  4. Is it necessary to project all three statements into an LBO model? Is there a way to do as in fast?

  5. In an LBO, what does it mean to have a "tax shield"?

  6. What does the internal rate of return (IRR) in an LBO model mean and how do you calculate it?

  7. What is the typical IRR for private equity firms?

  8. What is the typical IRR for private equity firms?

  9. In an LBO, how do you calculate the IRR? Are there any thumb rule?

  10. Is it possible for a private equity firm to make a good profit if it acquires a company for $1 billion and sells it for $1 billion in five years?

  11. Explain to me how do dividends issued to the PE firm affect the IRR?

  12. What if the initial equity contribution is the same as the net proceeds received by the PE firm after the company is sold?

  13. Isn't it true that interest and debt principal repayments must be factored into the IRR calculations?

  14. What is a "dividend recap" or "dividend recapitalization"?

  15. How would a private firm LBO vary from a public company LBO?

  16. What about a buyout where you only get a 30% ownership in the company?

  17. When buying a business, why would you use leverage?

  18. In an LBO model, how do you choose purchase and exit multiples?

  19. How do you value a firm using an LBO model, and why is it utilised as a floor valuation?

  20. Can you describe how an LBO model adjusts the balance sheet?

  21. Why would a company declare bankruptcy in the first place?

  22. What options does a distressed company have if it is unable to meet its debt obligations?

  23. Why does depreciation effect the cash balance if it is a non-monetary expense?

  24. What does it mean to have a negative working capital? Is this a warning sign?

  25. Explain what happens on the three statements when there is a $100 writedown.

  26. What differentiates an LBO valuation from a DCF valuation? Isn't it true that they both place a value on the company's cash flows?

  27. Give me a "real-life" LBO example.

  28. Why would a private equity firm want to use debt in an LBO if a strategic acquirer prefers to pay for another company entirely in cash?

  29. Why would a private equity firm invest in a "risky" industry like technology?

  30. How can a private equity firm improve its LBO return?

  31. How would you know how much debt might be raised and how many tranches there would be in an LBO?

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