Leveraged Lion Capital Jeopardy 2

Markets

100

What is systemic risk?

Risk related to the overall market

200

How would beta change during a crisis?

Beta would increase due to increased volatility

300

What are the two ways to hedge a corporate bond?

1: Short a treasury with matching duration

2: Buy a CDS on the security 

400

What caused the dollar to depreciate so much in early 2026, to reach four year lows, and then what caused it to have one of its single day biggest gains in a year? (three main reasons for the crash)

1: Massive flows into gold and silver which hurts the dollar

2: Concerns of treasury intervention with the BOJ to stabilize Japanese yields 

3: Sell America Trade due to overall uncertainty (tarrif threats/conflict with Denmark/Fed indepence)

Bounce Back: Bessent announces we will not be intervening with the BOJ and announcement of Warsh

500

How did Powell describe the labor market and inflation in the most recent January FOMC?

Hints: labor market is showing [blank] 

inflation [blank]

the labor market is "showing signs of stabilization"

inflation "remains somewhat elevated"

Valuation

100

3 places taxes affect a DCF

FCF, Cost of debt, levered beta

200

Does Revenue, COGS, or Capex impact a DCF the most? Why?

Capex, then COGS, then Revenue, b/c distance from FCF

300

Name 6 components of total enterprise value?

TEV = Equity Value + Debt + Preferred Stock + Capital Lease Obligations + Unfunded Pension Obligations – NOLs – Cash + Non-controlling interest + DTL's - DTA's

400

How do you unlever beta?

= levered beta / (1 + (1-tax rate)*(total debt/equity))

500

If a company has a P/E of 20x, an EV/EBITDA of 10x, Interest Expense of 20m, a 5% interest rate, depreciation of 20m and a market cap of 200m, what is the company’s tax rate?

Debt = 20 / .05 = 400

b. TEV = 400 + 200 = 600

c. EBITDA = 600 / 10 = 60

d. EBT = 60 - 20 - 20 = 20

e. P/E = 200 / x = 20; x = 10 therefore NI = 10

f. EBT - NI = Taxes = 20 - 10 = 10

g. Tax Rate = 10 / 20 = 50%

LBO's

100

What is IRR

The discount rate that makes the NPV of an investment 0

200

What are the two most important return metrics in an LBO

MOIC and IRR

300

4 reasons a strategic can pay more for a target than a financial sponsor. How?

a. Synergies

b. Lower cost of capital

c. Longer investment horizon

d. Lower return thresholds

e. Control premium

400

Steps of an LBO

1. Purchase Price assumptions: Define the entry price, financing structure (debt/equity mix), operating assumptions (revenue growth, margins), and transaction fees.
2. Create Sources and Uses: Determine where the capital is coming from (sources) and how it is used to pay for the company, fees, and refinanced debt.
3. Project Financial Statements (Cash Flow): Project the target's operating performance to determine the free cash flow (FCF) available for debt servicing.
4. Create Debt Schedule: Develop a schedule for interest payments and mandatory debt repayments using the generated cash flows.
5. Calculate Exit Value and Returns (IRR): Assume an exit multiple (usually similar to the entry multiple) to determine the sale price, then calculate the internal rate of return (IRR) for the sponsor. 

500

Calculate implied starting sponsor equity given the following: Required IRR = 25%; Ending equity value = $306; Exit year = 5

$100.3

Accounting

100

Why might the cash flow statement show higher depreciation than the income

Some depreciation may be inbeded in COGS and SG&A

200

In what cases do you see customers paying upfront in cash but company’s not recording the cash as revenue?

a. Web-based subscription software

b. Annual contracts for cell phones

c. Subscriptions generally

300

Why would a company with positive EBITDA over the past 10 years go bankrupt?

a. The company spends too much on CapEx which is not reflected in EBITDA

b. The company has high interest expense and cannot afford its debt

c. The company’s debt all matures on one date and can’t be refinanced therefore the company runs out of money

d. The company has significant one-time charges from settlements for example

400

Company sells PPE for 120. On the BS, the PPE is worth 100. What happens to the 3 statements?

N/A

500

Company raises 100 worth of debt at 5% interest and 10% yearly principal payment to purchase 100 worth of short term securities with 10% interest. What happens at the end of Year 1 after the company has earned interest and paid pack some debt principal.

NA

M&A

100

What type of synergy is easier for forecast.

Cost synergies

200

Why is cash preferred to acquire companies?

a. Interest on cash is almost always less than additionalinterest paid on debt

b. Cash is less risk than debt bc no chance buyer would fail raise sufficient funds from investors

c. Stock is most expensive way to finance transaction bc cost of equity is higher than cost of debt

d. Buyer’s share price could change dramatically

300

Buyer pays 100mm for the seller in all stock deal but market decides it’s worth 50mm. What happens?

Buyer’s share price goes down by the per-share dollar amount that corresponds to 50mm loss in value

400

Company A has EV of 100, market cap of 80, EBITDA of 10 and NI of 4. Company B has EV of 40, market cap of 40, EBITDA of 8 and NI of 2.

a. Calculate EV/EBITDA and PE multiples for each

Company A: EV/EBITDA=100/10=10x. PE = 80/4 =20x

Company B: EV/EBITDA=40/8=5x. PE = 40/2 = 20x

500

If the equity of a company is less than its worth or value, what must you include in an acquisition?

The Goodwill for the difference