You have stacks of quarters, dimes, nickels and pennies (these represent $0.25, $0.10, $0.05 and $0.01, respectively, in the US monetary system for anyone international). There are an unlimited number …

## What is the angle formed by the hands of the clock when it is 1:45?

142.5 degrees. If we just think of the clock hour hand at 1 and the minute hand at the 45 position (near 9 o’clock), that is 120 degrees since they are 4 “numbers” apart, and each number on the clock …

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## Most of the time, increased leverage means an increased IRR. Explain how increasing the leverage could reduce the IRR.

This scenario is admittedly rare, but it could happen if the increase leverage increases interest payments or debt repayments to very high levels, preventing the company from using its cash flow for …

## In an LBO model, is it possible for debt investors to get a higher return than the PE firm? What does it tell us about the company we’re modeling?

Yes, and it happens more commonly than you’d think. Remember, high-yield debt investors often get interest rates of 10-15% or more – which effectively guarantees an IRR in that range for them. So …

## How would you adjust the Income Statement in an LBO model?

The most common adjustments: • Cost Savings – Often you assume the PE firm cuts costs by laying off employees, which could affect COGS, Operating Expenses, or both. • New Depreciation Expense – …

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## Explain how a Revolver is used in an LBO model.

You use a Revolver when the cash required for your Mandatory Debt Repayments exceeds the cash flow you have available to repay them. The formula is: Revolver Borrowing = MAX(0, Total Mandatory Debt …

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