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Interview drill
Paper LBO Challenge
Guided interview desk. Solve sources and uses, operating build, debt schedule, exit returns, and a sensitivity matrix. Practice untimed, or race a 10 or 15 minute clock.
Educational simulation only. Not investment advice. Assumptions are simplified for interview practice.
Worked example: paper LBO in five moves
Round numbers only, the way an interviewer expects it. A stable industrial distributor with 40 of EBITDA, bought at 9.0x with 5.0x leverage, held five years and sold at the same 9.0x. All figures are in millions.
- Entry EBITDA
- 40
- Entry multiple
- 9.0x
- Leverage
- 5.0x EBITDA
- EBITDA growth
- 4% per year
- Hold period
- 5 years
- Exit multiple
- 9.0x
- FCF sweep
- 40% of EBITDA
Assumptions
- 1
Sources and uses
40 x 9.0 = 360 enterprise value
- 2
Split the capital
Debt 40 x 5.0 = 200, equity 360 - 200 = 160
- 3
Grow EBITDA
40 x 1.04^5 = 48.7 exit EBITDA
- 4
Sweep debt
Cumulative EBITDA 225 x 40% = 90, so debt 200 - 90 = 110
- 5
Exit and return
48.7 x 9.0 = 438, less 110 debt = 328 equity, 328 / 160 = 2.05x, 2.05^(1/5) - 1 = 15%
Roughly 2.0x and 15% with no multiple expansion. Growth adds about 78 of enterprise value and debt paydown adds about 90, so paydown carries more of this return than growth does. Say that out loud in the interview.
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. 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. 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. Exit and compute returns
Apply the exit multiple to exit EBITDA, subtract remaining debt, then compute MOIC and closed-form IRR.
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.
FAQ
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Educational simulation only. Not investment advice. Assumptions are simplified for interview practice.