Paper LBO Practice Questions (Worked + 3 Reps)

Most private equity first rounds include one paper LBO: a five-to-ten-minute pen-and-paper exercise where you're handed a short prompt (entry EBITDA, entry multiple, leverage, growth, margin) and asked to land on an IRR and MOIC with no calculator, per Wall Street Prep's paper LBO tutorial. This page is the practice set, not the method walkthrough. If you haven't built the five-step structure yet, start with how to solve a paper LBO, then come back here to drill it against ten fresh prompts and three local reps.

TL;DR

• Expect 5 to 10 minutes, pen and paper only, for one paper LBO prompt.
• The Five-Box Method turns any prompt into entry value, sources and uses, debt paydown, exit equity, and returns.
• A 2.25x five-year MOIC lands at roughly 17.6% IRR; memorize that anchor point.
• Ten practice prompts below cover leverage changes, fee add-ons, and multiple compression.
• The local pack checks the arithmetic step interviewers probe hardest: the debt-to-equity bridge at exit.

What is the Five-Box Method?

The Five-Box Method is a fixed sequence for any paper LBO prompt: write "Entry," "Sources and Uses," "Debt Paydown," "Exit," and "Returns" as five boxes before you touch a number. Each box has one job and one check.

1. Entry: entry EBITDA times entry multiple equals enterprise value.
2. Sources and Uses: debt plus sponsor equity must equal the enterprise value (plus fees, if the prompt states any).
3. Debt Paydown: apply the stated free cash flow to debt only; don't assume all EBITDA growth becomes repayment cash.
4. Exit: exit EBITDA times exit multiple equals exit enterprise value; subtract remaining debt to get exit equity.
5. Returns: MOIC is exit equity over entry equity; IRR is MOIC raised to one over the holding period, minus one.

Writing the five box labels first, before any arithmetic, keeps you from skipping a step under time pressure, which is the most common way candidates lose the round even when their math is fine.

Worked example: entry to exit in under two minutes

Prompt: Entry EBITDA of 100, entry multiple of 5.0x, financed with 300 of debt and the remainder in sponsor equity. EBITDA grows 5% a year for five years. Cumulative free cash flow of 100 over the hold repays debt in full. Exit multiple is unchanged at 5.0x.

$$\text{Entry EV}=100\times5.0=500$$ $$\text{Sponsor equity}=500-300=200$$

Exit EBITDA compounds at 5% for five years:

$$100\times1.05^5\approx127.6\ (\text{round to }130)$$

Debt falls from 300 to 200 after the 100 of repayment. Exit enterprise value at the unchanged 5.0x multiple is 130 times 5.0, or 650. Subtract the 200 of remaining debt for exit equity of 450.

$$\text{MOIC}=\frac{450}{200}=2.25\text{x}, \quad \text{IRR}=2.25^{1/5}-1\approx17.6\%$$

Practice inside this guide

Paper LBO math

Question 1 of 3

A company has $300 million of debt at a 5% interest rate. What is its annual interest expense?

Your answer

millions

Check answer

The pack above checks three related pieces of that arithmetic in isolation: entry funding, an exit bridge, and a returns calculation. It's a self-check on the mechanics, not a replacement for running the full five boxes yourself under a clock.

Ten more paper LBO prompts to practice

1. Entry EBITDA 80, 6.0x multiple, 350 debt. What is sponsor equity? Entry EV is 480; sponsor equity is 480 minus 350, or 130.
2. Same deal, but the prompt adds 20 of financing fees funded by debt. How does sponsor equity change? Uses rise to 500; with debt unchanged at 350, sponsor equity rises to 150.
3. Debt is 4.0x EBITDA instead of 3.0x, same 5.0x entry multiple. What happens to the MOIC if exit proceeds are unchanged? Lower entry equity with the same exit equity raises MOIC, because the numerator is fixed and the denominator shrinks.
4. EBITDA margin compresses from 30% to 25% over the hold, entry EBITDA unchanged. What does that do to exit multiple math if the exit multiple is applied to EBITDA? Nothing directly, since exit EBITDA is still the driver; margin compression matters if it lowers exit EBITDA versus the base case, which lowers exit EV.
5. Exit multiple compresses from 5.0x to 4.0x, same 130 exit EBITDA and 200 remaining debt. What is the new MOIC? Exit EV is 520; exit equity is 320; MOIC is 320 divided by 200, or 1.60x.
6. A dividend recapitalization returns 50 of cash to the sponsor at year 3, with the remainder unchanged at exit. How does this affect the returns calculation? You now have two cash flows instead of one, so a single MOIC-to-IRR shortcut no longer works; you need each cash flow's timing to compute IRR properly.
7. The prompt gives revenue and margin instead of EBITDA directly. What's your first step? Multiply revenue by the EBITDA margin to get EBITDA, then proceed with the entry multiple as usual.
8. Sponsor equity is 200, exit equity is 500, holding period is 4 years instead of 5. What is the IRR? MOIC is 2.5x; IRR is 2.5 to the power of one-fourth, minus one, or roughly 25.7%.
9. The interviewer asks you to sanity-check your IRR without a calculator. What shortcut do you use? The Rule of 72: divide 72 by the annualized percentage return to estimate years to double; compare that to your holding period as a rough plausibility check.
10. Debt paydown is given as a schedule (60 in year 1, 40 more by year 3, none after) rather than a single cumulative number. Does the exit debt calculation change? No, the exit debt is still entry debt minus total repayment over the hold; the schedule only matters if the prompt asks about interim cash flows or a mid-hold recap.

What to practice next

Ten more paper LBO reps and full domain drills are on the drills library, filtered to LBO. For the verbal version of the same walkthrough, see walk me through an LBO, and for the funding-side detail, sources and uses of funds explained.

Paper LBO prompt variables and what each one changes

Frequently Asked Questions

How many minutes do I actually get for a paper LBO?

Most private equity first rounds give 5 to 10 minutes for one prompt, per Wall Street Prep's paper LBO tutorial. Some interviewers extend that for a first attempt; treat 5 to 10 minutes as the target you train against, not a guarantee for every seat.

Is a calculator ever allowed?

Follow the specific instructions you're given. Practicing by hand is still worthwhile even if your actual interview allows a calculator, because the mental shortcuts (rounding EBITDA, the Rule of 72) are what keep you fast when the prompt adds a twist.

What's the single most common mistake?

Quoting exit enterprise value as if it were the sponsor's proceeds. The remaining debt has to come out first: exit equity equals exit enterprise value minus remaining debt, not the raw exit EV.

Do I need to memorize IRR to the decimal?

No. A defensible spoken range (for example, "roughly 17 to 18 percent") with your rounding explained is normal and expected. Precision to the decimal matters less than showing your work is internally consistent.

How is this different from a full LBO model?

A paper LBO takes debt paydown as a given input and skips financing detail a full model would build from linked schedules. It teaches the relationship between entry funding, debt paydown, and exit returns without the three-statement buildout.

What if the prompt gives me a dividend recap or multiple cash flows?

Then a simple MOIC-to-IRR shortcut breaks down, because IRR depends on the timing of each cash flow, not just the total multiple. Say so explicitly and either approximate with a blended holding period or ask whether an approximation is acceptable.

Sources

• Wall Street Prep: paper LBO tutorial (checked September 2026).
• 10X EBITDA: private equity paper LBO walkthrough (checked September 2026).
• Breaking Into Wall Street: paper LBO example (checked September 2026).