Paper LBO: a template and three solved cases - Work through the prompts before checking the answers

Oct 13, 2026

Wall Street Playbook provides a free, private-equity study resource for Paper LBO modeling. It guides users through a five-step workflow reconciling entry funding, cash generation, exit equity, and sponsor returns using cash-free, debt-free assumptions. The document includes a structured solving sheet plus three worked cases: separating growth from repayment, building a cash sweep under taxes and investment needs, and testing whether a downside scenario can support the proposed debt and exit terms.

LanguageEnglish

CategoryPresentations

FormatPDF

Pages7

Reading Time3 min

AccessFree to download

THE TASK

How to use this resource

Your five-step solving sheet

Case 1 / Separate growth from repayment

Case 2 / Build the cash sweep

Case 3 / When the downside consumes cash

Wall Street Playbook. FREE FIELDNOTES / PRIVATE EQUITY Paper LBO: a template and three solved cases Work each fictional case before opening the solution. The first isolates the equity-return bridge; the second adds taxes, interest and a cash sweep; the third asks whether a downside case can support the proposed debt. All dollar figures are in millions unless stated otherwise. THE TASK Reconcile entry funding, cash generation, exit equity and sponsor returns on paper. Foundational modeling practice | Suggested session: 45-60 minutes Updated 2 October 2026. Original exercises with stated assumptions and source notes. PRIVATE EQUITY How to use this resource Work through the prompts before checking the answers. Keep a record of the assumption or step that caused difficulty, then repeat that part without notes. The suggested timing is a study aid, not an employer assessment standard. Your five-step solving sheet For these cases, assume a cash-free, debt-free acquisition with no fees, no existing cash or other claims, no interim dividends and a sale at the end of the stated final year. Acquisition debt is newly issued. Cases that require tax or interest assumptions state them explicitly. Step Write this down Check | 1. Entry | EBITDA x entry multiple = enterprise value | Clarify whether debt is refinanced and cash is retained. | | --- | --- | --- | | 2. Funding | Purchase uses + fees = debt + sponsor equity | Sources must equal uses. | | 3. Cash and debt | Operating cash after interest, taxes and | EBITDA is not cash available for | | | investment; debt roll-forward | repayment. | | 4. Exit | Exit EBITDA x multiple-debt + | Include exit fees and other claims if | | | distributable cash | specified. | | 5. Returns | Sponsor proceeds / invested equity; | Include interim flows once, in their | | | timing-consistent IRR | actual periods. | Entry enterprise value / debt / sponsor equity | Annual cash available / beginning debt / ending debt | | --- | | Exit enterprise value / exit equity / MOIC / IRR | PRIVATE EQUITY Case 1 / Separate growth from repayment Allow ten minutes as a practice target. Cedar Services has entry EBITDA of $20 and is acquired at 8. 0x EBITDA. Acquisition debt is $80. Exit EBITDA in year five is $25, the exit multiple is 8. 0x and cumulative debt repayment is $30. The repayment figure is already cash after interest, taxes and investment; do not subtract those items again. • Calculate enterprise value, initial sponsor equity and exit debt. • Calculate exit equity, MOIC and annual IRR. • Explain how much of the equity gain came from growth and how much from repayment. • Repeat the exit at 7.0x EBITDA and explain what changed. Entry and exit calculation Return-driver explanation WORKED ANSWER Case 1 / Worked solution The $70 equity gain consists of $40 from EBITDA growth at the entry multiple and $30 from debt repayment. There is no multiple expansion. At 7 . 0x, exit EV is $175, equity is $125, MOIC is 1. 5625x and IRR is 9.34% . The one-turn multiple reduction removes $25 of equity proceeds. PRIVATE EQUITY | Calculation | Result | | --- | --- | | Entry EV: $20 x 8.0 | $160 | | Sponsor equity: $160- $80 | $80 | | Exit debt: $80- $30 | $50 | | Exit EV: $25 x 8.0 | $200 | | Exit equity: $200- $50 | $150 | | MOIC: $150 / $80 | 1.875x | | IRR: 1.875^(1/5) -1 | 13.40% | Case 2 / Build the cash sweep Harbor Components has EBITDA of $30 in each of three years. Entry and exit valuation are 7. 0x EBITDA. New debt is $100 at 8% cash interest on beginning-of-year debt. Annual D&A is $5, capex is $7 and operating NWC investment is $3. Tax is 25% of positive EBIT less interest, paid in the same year. Sweep all cash after those items to debt at year-end. Ignore financing fees, minimum cash, mandatory amortization, losses and interest-deduction limits. • Calculate entry equity. • For each year, calculate interest, taxable income, cash tax and cash available fo

FAQs

What is the main objective of the Paper LBO exercise?

Reconcile entry funding, cash generation, exit equity, and sponsor returns on paper using a consistent modeling workflow.

What assumptions are used for the fictional LBO cases?

Assume a cash-free, debt-free acquisition with no fees, no existing cash or other claims, no interim dividends, and a sale at the end of the final stated year, with newly issued acquisition debt.

How does Case 1 distinguish equity gain from growth versus debt repayment?

It calculates enterprise value and sponsor equity at entry, then compares exit outcomes to explain how much of the equity gain comes from EBITDA growth at the entry multiple versus repayment of cumulative debt.

Oct 13, 2026

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