Paper LBO Challenge

Method

A paper LBO is the interview version of a leveraged buyout model: pen, paper, and mental math. This tool uses the same structure recruiters expect, with a simplified FCF sweep so you can finish under time.

Answers are graded against a deterministic educational model. Interest is simplified into the FCF sweep assumption. There are no interim dividends. That matches how most interview drills are taught, not a full underwriting model.

1. 1. Set purchase price and capital structure

   Multiply entry EBITDA by the entry multiple for enterprise value. Split debt and equity using the leverage multiple.

2. 2. Grow EBITDA and sweep free cash flow

   Compound EBITDA across the hold period. Apply a fixed share of each year's EBITDA to repay debt.

3. 3. Exit and compute returns

   Apply the exit multiple to exit EBITDA, subtract remaining debt, then compute MOIC and closed-form IRR.

4. 4. Read the sensitivity matrix

   Stress entry and exit multiples so you can defend returns when the process moves against your base case.

Recruiters use paper LBOs to test whether you can hold sources and uses, EBITDA growth, debt paydown, and equity returns in your head at once. Start by locking enterprise value and the equity check. Then project exit EBITDA with clean compounding so you do not lose turns of growth. Debt paydown is where most candidates slip: if the sweep is weak, remaining debt stays high and MOIC compresses even when EBITDA looks fine. Finally convert MOIC into IRR with the closed-form shortcut so you can defend a recommendation under time. Practice until the sequence feels automatic, then move into the full Super Simulator for cascading deal decisions across sourcing, valuation, value creation, and exit across 20+ integrated workspaces.

Related

• Deal Screening Challenge
• LBO Returns Sandbox
• Value Bridge Builder
• For students