venture capital method is the post, pre, inv, etc. whats leverage buyout method exactly
I’ll sum it up really quickly - basically you buy a company, with as much debt as possible (high multiple of EBITDA), then use the company’s free cash flows to pay off the debt (cash sweep).
ur serious right? its where you assess the equity value based on either DCF or IRR. to get the price for the full firm though you have to add the mkt value of debt and mkt value of other equity holders in the deal.
so youre refering to the target irrr method
the LBO method is the one where you delever / unlever the beta of equity using the beta of Asset (1 by default) and the amount of Equity and Debt in the firm. Calculate the amount of equity. There is an example running to about 2 pages in Schweser. do this for every year - given the numbers for the amount of equity + debt 1/(E/(D+E)) = Equity Beta. Now using Rf and (rm-rf) and the new Beta get the equity new amount. and work backwards.
that would be the equity cahs flow method. i think the target irr method gets you the same thing. really cant imagine them asking the equity method as its very calculation intensive. but still will review.
Hey CP, are you given the amount of junior / senior debt provided in each of the years going forward? … there is not calc for that right?
it was given on the previous page im sure it would be given too…or theyll give total debt and tell u the % each yr
I have skipped this particular section, if they ask this, know that I will be guessing all the way to B’s. not worth learning this method so late… realize i can spend some time with PM and get like 40-50% there.
The LBO method is pretty hard to test on, I would imagine. Something that lends itself more to qualitative questions, not quant, in this format.
i definitely agree. thats why im suspicious of the whole PE section. because theres a lot of info but i dono what kind of item set theyd put on. it either would be way to general and easy or way too hard and detailed. perhaps the venture capital method is the best candidate along with a few definitions, maybe a carried interest question.
To be precise, LBO is an acquisition of a company or a segment of a company funded mostly with debt. I initially found this so difficult to figure out but it got easier gradually. I went through quite a few websites but found this website really useful. Bluebook Academy’s explanations regarding the LBO were pretty effective. Here’s a link just in case others would get benefited by this. https://www.youtube.com/watch?v=UOJwZKuj62k