CFM CFM M&A Modeling & Deal Structuring 2

Question 1

In an LBO model, which metric do private equity sponsors primarily use to measure investment returns?

Accepted Answer

Internal Rate of Return (IRR) and Money-on-Money (MoM) multiple

Answer

Return on Assets (ROA)

Answer

Net Present Value (NPV) of equity cash flows

Answer

Dividend yield at exit

Question 2

What is the purpose of a 'sources and uses' table in an LBO or M&A model?

Accepted Answer

To show how the deal is financed (sources) and how the funds are applied (uses)

Answer

To reconcile the income statement with the balance sheet

Answer

To track the amortization schedule of acquisition-related debt

Answer

To project post-deal synergies over a five-year period

Question 3

In M&A deal structuring, what is a 'collar' agreement?

Accepted Answer

A mechanism that adjusts the exchange ratio if the acquirer's stock price moves outside a set range

Answer

A cap on management retention bonuses post-close

Answer

A regulatory approval condition imposed by the DOJ

Answer

A floor on the minimum cash consideration paid to target shareholders

Question 4

When modeling an LBO, 'debt paydown' improves equity returns primarily by:

Accepted Answer

Reducing net debt at exit, which increases equity value for the same EV

Answer

Increasing the EBITDA of the combined company

Answer

Lowering the entry multiple paid by the sponsor

Answer

Extending the hold period to allow more operational improvements

Question 5

What distinguishes a 'merger of equals' from a typical acquisition?

Accepted Answer

Both companies combine at roughly equal valuations with shared governance and no control premium

Answer

No premium is paid to either party's shareholders

Answer

The deal must be financed entirely with debt

Answer

Synergies are excluded from deal modeling

Question 6

In M&A modeling, how is goodwill calculated?

Accepted Answer

Purchase equity value minus the fair value of net identifiable assets acquired

Answer

Revenue of the target minus its total liabilities

Answer

Total enterprise value minus total debt at acquisition date

Answer

EBITDA × entry multiple minus book equity