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What the interviewer is testing
Speed and structure with mental math: entry value, debt and equity, exit value, exit equity, then MOIC and an approximate IRR, without a calculator.
Answer framework
- Entry: enterprise value = entry multiple x EBITDA; split into debt and equity (ignore fees unless told).
- Exit EBITDA: grow EBITDA over the hold period.
- Exit value: exit multiple x exit EBITDA.
- Exit equity: exit value minus remaining debt (after any paydown).
- Returns: MOIC = exit equity / entry equity; estimate IRR with rules of thumb.
Sample answer
Take 10x entry, $200M EBITDA, 6x debt, 5% growth and a 10x exit in 5 years. Entry enterprise value is 10 x $200M = $2,000M; debt at 6x is $1,200M, so equity is $800M, ignoring fees.
Year-5 EBITDA is $200M x 1.05^5, about $255M. Exit at 10x is about $2,553M. If no debt is repaid, exit equity is $2,553M - $1,200M = $1,353M: MOIC about 1.7x, IRR about 11%.
If, say, $300M of debt is repaid from free cash flow, exit equity is about $1,653M: MOIC about 2.1x, IRR about 15 to 16%.
Likely follow-ups
Common mistakes
- Forgetting to subtract remaining debt at exit.
- Computing MOIC on enterprise value instead of equity.
- Losing time on exact IRR math instead of using rules of thumb.
- Not stating simplifying assumptions such as ignoring fees.
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Related questions
Based on questions #74, #75 in the full question bank.