Wall Street Prep Premium Exam (Latest
Updates) Questions and
Answers 100% Correct (Verified Answers)-
{Grade A}
Which of the following is NOT a disadvantage of performing an LBO analysis? - correct
answer Stand-alone LBO may overestimate strategic sale value by ignoring synergies
with acquirer
While equity contribution went as low as the single digits in the 1980's, the current split
between equity and debt in an LBO deal is best characterized as: - correct answer
Equity - 35%; Debt 65%
When an LBO sponsor wishes to exit its investment in 5 years, one way to find the
equity value of a company at the LBO sponsor's exit year is to: - correct answer Use an
Enterprise Value/Sales multiple to find Enterprise Value and then subtract net debt
,Use an Enterprise Value/EBITDA multiple to find Enterprise Value and then subtract
net debt
Use a Price/Earnings multiple to find Equity Value
Under recapitalization accounting - correct answer The purchase price is reflected as
a reduction to equity
which of the following is true about senior debt - correct answer None of the Below.
Has the least restrictive covenants because it is secured by the company's assets
Since it is secured by the company's assets, lenders prefer to have the debt
outstanding over time in order to generate more interest
Usually uses PIK securities or come with warrants like mezzanine debt
On December 30, 2013:
• Company Y trades at $10 per share
, • Enterprise Value / EBITDA multiple of 5.0x
• Leverage ratio of 0.6x (Net debt/EBITDA)
• 2013 EBITDA = $2.0 billion
• Assume no cash on company Y's balance sheet
On December 31, 2013:
• Company Y undergoes an LBO and is recapitalized
• The company's new leverage ratio becomes 5.0x
• Financial sponsor exit is planned for Year 5. Assume that the EV/ EBITDA multiple at
exit year is the same
as the current multiple.
• Required rate of return is 25%
• Exit year EBITDA projected to be $3.0 billion
• The company's year-end leverage ratio is 1.6x
What is the initial Equity Value? - correct answer 8.8 billion
Updates) Questions and
Answers 100% Correct (Verified Answers)-
{Grade A}
Which of the following is NOT a disadvantage of performing an LBO analysis? - correct
answer Stand-alone LBO may overestimate strategic sale value by ignoring synergies
with acquirer
While equity contribution went as low as the single digits in the 1980's, the current split
between equity and debt in an LBO deal is best characterized as: - correct answer
Equity - 35%; Debt 65%
When an LBO sponsor wishes to exit its investment in 5 years, one way to find the
equity value of a company at the LBO sponsor's exit year is to: - correct answer Use an
Enterprise Value/Sales multiple to find Enterprise Value and then subtract net debt
,Use an Enterprise Value/EBITDA multiple to find Enterprise Value and then subtract
net debt
Use a Price/Earnings multiple to find Equity Value
Under recapitalization accounting - correct answer The purchase price is reflected as
a reduction to equity
which of the following is true about senior debt - correct answer None of the Below.
Has the least restrictive covenants because it is secured by the company's assets
Since it is secured by the company's assets, lenders prefer to have the debt
outstanding over time in order to generate more interest
Usually uses PIK securities or come with warrants like mezzanine debt
On December 30, 2013:
• Company Y trades at $10 per share
, • Enterprise Value / EBITDA multiple of 5.0x
• Leverage ratio of 0.6x (Net debt/EBITDA)
• 2013 EBITDA = $2.0 billion
• Assume no cash on company Y's balance sheet
On December 31, 2013:
• Company Y undergoes an LBO and is recapitalized
• The company's new leverage ratio becomes 5.0x
• Financial sponsor exit is planned for Year 5. Assume that the EV/ EBITDA multiple at
exit year is the same
as the current multiple.
• Required rate of return is 25%
• Exit year EBITDA projected to be $3.0 billion
• The company's year-end leverage ratio is 1.6x
What is the initial Equity Value? - correct answer 8.8 billion
