You are modeling a potential LBO transaction funded with a Revolver, Term Loan A and Term Loan B.

Assume any Excess Cash is used to pay down the Revolver first, then the Term Loan A, and then the Term Loan B.

When writing the formulas for the Optional repayment of the Term Loan A, which variables below should NOT be included?

1. Cash used to paydown the Revolver
2. Any Mandatory Debt Repayments of Term Loan A
3. Cash used for the Mandatory Repayments of Term Loan B
4. Cash used for the Optional Repayments of Term Loan B
5. Current Balance of Term Loan A

• 1 only
• 3 only
• 4 only
• 2 and 3
• 4 and 5

Which of the following is NOT a major contributor to increasing Equity returns for a Private Equity firm in a LBO transaction?

• Buying at a low Entry multiple
• Cutting Costs to paydown debt
• Pivoting the entire Company into a new Growth industry
• Improving the business to achieve a higher Exit multiple
• Selling undervalued, non-core assets

You have just completed your LBO model for a potential transaction, and realize your final projected returns for the Financial sponsor are too low. Which of the mistakes below may be causing problems in your model?

1. You included Dividend payments in your Return calculation
2. You did not add back Stock based compensation to Net Income for Cash from operating activities
3. You allowed debt to be repaid with Excess cash before paying Equity holders
4. Your EV/EBITDA Exit multiple is too high
5. You treated increases in net working capital as a cash inflow

• 1 only
• 2 only
• 1 and 3
• 2 and 5
• 4 and 5