TRANSACTION COMPS MODELING WALL
STREET PREP EXAM | COMPLETE STUDY
GUIDE 2026/2027 | VERIFIED ANSWERS |
100% CORRECT | GRADED A+
Which of the following adjustments would be made to the pro forma income
statement? - ANSWER Advisory fee expense of $30 million
Depreciation expense increases due to PP&E write-up
Pre-tax synergies of $2 million
Use the following information to answer the question below:
• Acquisition takes place on July 1, 2013
• Acquirer FYE - June 30
• Target FYE - December 31
• Acquirer expected EPS for FYE June 2014 is $2.40
• Target consensus EPS for FYE Dec 2013 is $1.12
• Target consensus EPS for FYE Dec 2014 is $1.78
Assuming 360 days in a year for simplicity, calculate target EPS adjusted to
acquirer FYE in the transaction year
(FYE June 2014) - ANSWER $1.45
, A 338(h)(10) election: - ANSWER Requires that both buyer and seller must
jointly elect to have the IRS deem the acquisition an asset sale for
tax purposes
A good LBO candidate has which of the following characteristics? -
ANSWER Little to no existing leverage, steady cash flows and little investment
in business through capex and working capital
Which of the following is NOT a disadvantage of performing an LBO analysis? -
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: -
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: - 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 - ANSWER The purchase price is reflected
as a reduction to equity
, Which of the following is true about senior debt - ANSWER None of the
following.
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 comes 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? - ANSWER 8.8 billion
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
How much debt is paid down by the exit year (since the LBO announcement)? -
ANSWER 5.2 billion
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
STREET PREP EXAM | COMPLETE STUDY
GUIDE 2026/2027 | VERIFIED ANSWERS |
100% CORRECT | GRADED A+
Which of the following adjustments would be made to the pro forma income
statement? - ANSWER Advisory fee expense of $30 million
Depreciation expense increases due to PP&E write-up
Pre-tax synergies of $2 million
Use the following information to answer the question below:
• Acquisition takes place on July 1, 2013
• Acquirer FYE - June 30
• Target FYE - December 31
• Acquirer expected EPS for FYE June 2014 is $2.40
• Target consensus EPS for FYE Dec 2013 is $1.12
• Target consensus EPS for FYE Dec 2014 is $1.78
Assuming 360 days in a year for simplicity, calculate target EPS adjusted to
acquirer FYE in the transaction year
(FYE June 2014) - ANSWER $1.45
, A 338(h)(10) election: - ANSWER Requires that both buyer and seller must
jointly elect to have the IRS deem the acquisition an asset sale for
tax purposes
A good LBO candidate has which of the following characteristics? -
ANSWER Little to no existing leverage, steady cash flows and little investment
in business through capex and working capital
Which of the following is NOT a disadvantage of performing an LBO analysis? -
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: -
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: - 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 - ANSWER The purchase price is reflected
as a reduction to equity
, Which of the following is true about senior debt - ANSWER None of the
following.
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 comes 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? - ANSWER 8.8 billion
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
How much debt is paid down by the exit year (since the LBO announcement)? -
ANSWER 5.2 billion
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
